Canada – GDP expanded at an annualized pace of 3.5% in 2016Q3 after an upward revision to the first half of the year. In light of these results, we raised our 2016 Canadian GDP growth forecast one tick to 1.3%. The GDP growth figures for the previous three years were revised as well, up from 2.2% to 2.5% for 2013, up from 2.5% to 2.6% for 2014, and down from 1.1% to 0.9% for 2015. Overall, there was a net upgrade for the three-year period. Back to 2016Q3, trade contributed to GDP growth as expected, with exports rising faster than imports. Domestic demand added to growth as well, but less so than in the prior quarter, as a swell in consumption was offset by contractions in government spending and residential construction. Business investment was not a drag on growth for the first time in two years. Inventories made a positive contribution for a second consecutive quarter. Nominal GDP jumped 6.1% annualized, its largest increase since 2013Q1. The GDP data for September showed a consensus-topping monthly advance of 0.3% (unannualized), as both the goods sector and the services sector registered gains. For Q3 as a whole, goods sector output sprang almost 10% annualized, making up for the prior quarter’s slump.
Consumption was given a boost by the federal government’s enhanced Child Benefit program. Real household income rose 7.1% in Q3, its steepest jump since 2010. Such a strong gain allowed Canadians to both spend more and save more (the savings rate shot to 5.8% in Q3, its highest level since 2001), which will help support consumption this quarter and into 2017. The excellent hand-off from September (+0.3% increase in output) is another reason to be pleased, as it sets the economy in fine stead to grow further in Q4. However, the picture is not all rosy. Though encouraging, the gains from trade did not entirely reverse the prior quarter’s losses. This is why inventories keep growing, which does not augur well for future production.
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