Last week saw only one key piece of data coming out of Canada. This was the industry GDP for February. The monthly reading for the GDP was up 0.2 percent. This is a good reading following a robust report of 0.5 percent in January. The numbers are hovering around the six month moving average. Looking at the details of the report, the goods sector will drive the economy in 2015. Goods expansion is expected to reach an expansion of 3.3 percent in 2015. This is its best pace of growth since 2000 and does not include the rebound of 2010 and then 2011.
Data, for February, showed the goods sector expanding by 0.5 percent. We saw a nice expansion of 0.9 percent the month prior. This follows a depressed reading for December which was impacted by the cold and storms. Mining, oil and gas led the way expanding 4.8 and 0.7 percent respectively. Manufacturing helped by growing at 0.6 percent. As manufacturing continues to improve, so will goods production though 2015 into 2015. The weak Canadian dollar is also helping to bolster these gains as well as helping their oil industry. We are also seeing demand from the US increasing.
Weakness Evident in Construction
We expect to see some weakness in construction, for both residential and commercial building. As they are past their peak. We have seen negative growth in seven of the past nine months. The service sector grew a weak 0.1 percent on a monthly basis. This is its weakest showing in eight months. We are not expected to grow past its 2.1 percent we saw in 2013. The weaker Canadian dollar is expected to help export activity which should give some support to some of the service sectors like wholesale trade, transportation, and warehousing. Private sectors will move along at a steady rate. This will be due to opposing influences as low interest rates along with okay unemployment numbers fighting consumer debt levels.
Another area for concern will be in public services. Budget deficits are still being wrestled with as we are seeing Ontario’s budget, being released this week, to highlight spending restraint. Ontario has a high budget deficit at $11 billion which is 1.6 percent of its GDP. They are looking for balance by 2017 to 2018 by restraining expenditure growth by 1.1 percent from 2014 to 2017. In order to help finance these measures, Ontario needs to raise taxes on high income individuals (those that make $150 to 220K) from a marginal tax rate of 48 percent to 49.5 percent. They will also increase excise tax on tobacco. However these proposals have been set aside and the budget is not likely to be passed.
Binary Option Take for the Day
Looks like we could see some volatility in the USD/CAD which has been nice and steady just above parity. Still volatility in the Forex market is low. Looking at EM currencies for some carry longs is still viable.
Discussion:
What do you think of the Canadian economy? Will it outperform this year? Sound off in comments below.