Last Wednesday, estimates of economic growth in the U.S. during the first quarter of 2014 were revised downwards for a second time. The first release had assessed quarterly growth at an annual rate of 0.1% and the second reduced this to -1%; now the figure has been revised to -2.9%. This is the worst GDP result south of the border since 2009. A remark made by James Bullard, President of the Federal Reserve Bank of St. Louis, garnered much attention in the financial markets. He said that the U.S. economy is improving enough to withstand an increase in short-term interest rates, and that he would be favourable to the Fed increasing its key interest rate in the first quarter of 2015.
The Loonie
“The sequence we can anticipate is the following: foreign demand will build; our exports will strengthen further; confidence will improve; existing companies will expand; companies will invest to increase capacity; and new ones will be created.” – Stephen Poloz’s speech before the Oakville Chamber of Commerce on June 19, 2013
The above prediction by Mr. Poloz, made in June 2013, seems about to come true. Even though Canadian exports slowed slightly (-1.8%) in April, they have been revised sharply upward for February and March 2014, such that Canadian exports in the first quarter grew 5.4% on a quarterly basis. The setback in April was essentially due to a 10.7% drop in energy exports. Had it not been for this decline, Canada’s total exports would have grown by close to 1.5% in April. The forestry sector performed very well, with exports up 14.6% on the strength of expanding construction activity in the U.S., where the economy has picked up after a sluggish start to the year due to unfavourable climatic conditions. Canadian exports of electronic equipment also jumped 8.9%, the strongest increase in over a decade, due to 21.1% growth in exports of communications equipment.
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