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Economic Analysis: GDP – March 2017

Manufacturing outpaces all other sectors in a strong March for the Canadian economy           

After growth was essentially flat in February, the Canadian economy snapped back to life in March, led by a surge in goods-producing industries – notably manufacturing and utilities. Overall, GDP expanded by a healthy 0.51 per cent for the month, equivalent to an annualized rate of about 6.1 per cent. That growth represents one of the best monthly performances for the Canadian economy over the past two or three years.

March’s growth added more evidence that momentum is building in the Canadian economy after years of protracted weakness. After spending too much time averaging less than 1 per cent, year-over-year GDP growth has been accelerating since November and in March was 3.2 per cent higher than at the same point last year.

The release of GDP numbers for March means that first quarter data are also available for 2017. In Q1, the Canadian economy expanded by 0.9 per cent –equivalent to an annualized increase of about 3.7 per cent.

Perhaps the best news from the quarterly GDP results was that growth was driven by a long-awaited recovery in business investment. Business investment had been in a freefall since oil prices dropped, not only dampening overall economic growth but prompting concerns about long-term economic competitiveness in Canada. However, after falling for nine of the past 10 quarters, business investment finally swung back into positive territory to begin 2017. Led by new investment in residential structures and in non-residential machinery and equipment, GDP in business capital formation rose by 2.9 per cent compared to the final quarter of 2016.

While certainly good news, there is still a big hill to climb before business investment in Canada returns to healthy levels. Even with the increase in Q1, business investment remains 7.5 per cent lower than it was three years ago.

Turning back to the monthly figures for March, GDP gains were relatively widespread across the Canadian economy, with 12 of the 15 major economic sectors recording positive growth. The most significant gains were in goods-producing industries, and most notably in manufacturing and utilities. Both those sectors expanded by 1.6 per cent compared to February. However, since manufacturing represents a far larger share of the Canadian economy, its contribution to overall growth was correspondingly larger as well.  Nearly one third of national economic growth in March came from manufacturing.

 

There was strong growth in other sectors of the economy as well. Wholesale and retail trade GDP saw a healthy increase in March (0.9 per cent), and new residential housing developments drove construction GDP higher as well (0.8 per cent). In fact, agriculture was the only sector to see a notable decline that month.

March was an excellent month for Canadian manufacturing. In spite of a drop in February, GDP in manufacturing has been on a roll for the past several months. Those previous gains, combined with the 1.6 per cent increase in March, drove monthly GDP in the sector to its highest level in more than a decade.

 

Adding to the good news, the growth in manufacturing was widespread. Of the eleven leading manufacturing industries in Canada, all but two were higher. The only losses were in fabricated metals – which dipped slightly after three consecutive months of growth – and paper products, where GDP has now fallen for three months in a row.

Other than those two industries, it was cross-the-board black ink in March. Leading the way was machinery production, which has enjoyed a remarkable turnaround in the past 12 months. GDP in machinery was up 3.9 per cent in March and is 12.3 per cent higher than at the same time last year.  There were also solid gains in petroleum refining, wood products, chemicals, plastics and rubber products, primary metals and motor vehicles. In all cases, GDP was more than 2 per cent higher in March compared to February.

 

 

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