Canada: First GDP decline in five months, not overly worrisome - NBF

Matthieu Arseneau, analyst at National Bank of Canada, affirmed that they still expect GDP growth to come out around potential in Q1 (1.5%), despite January’s contraction.  

Key Quotes:

“Canada’s real GDP was down 0.1% in January, below consensus expectations calling for a 0.1% increase. However, there is a silver lining in this morning’s release: an upward revision of one tenth was announced for December’s growth (0.2% vs. 0.1% initially announced).”

“Canada’s GDP came in below consensus, with the first decline in output in five months and its worst performance since June 2016. That being said, the decline is not overly worrisome as temporary factors impacted growth.”

“Otherwise, the largest monthly pullback since the last recession in the real estate sector (-0.5%) indicate a weakness that could be temporary as the implementation of B-20 measures had caused front-loaded sales in December. Despite those temporary factors affecting growth early in 2018, we still expect GDP growth to come out around potential in Q1 (1.5%). 

“Does it mean that our scenario of 2.5% annual growth in 2018 is at risk? In light of this week’s release of both Ontario and Quebec budgets, we are sticking with our scenario of a subsequent acceleration of growth as pre-electoral gifts will provide a lot of support to the Canadian economy. This assumes of course a favourable outcome of NAFTA negotiations in the coming weeks. It would be disappointing to curb a manufacturing sector that is showing a good momentum after years of stagnation."