10th March 2017

Canada’s economy grew at an impressive 2.6% annualized rate through the fourth quarter of 2016, better than the US (at 1.9% growth) and significantly higher than expectations. December brought a $900+ million trade surplus to the country, its second consecutive month of a profitable trade balance. Canada’s unemployment rate has also dipped to 6.8% in January, thanks to a higher-than-expected addition of 48,300 jobs in January. 

Moreover, the apparent failure of the Trans-Pacific Partnership, together with moves toward a breakdown of global trade norms thanks to victories for Brexit and Donald Trump, have prompted Canada to begin discussions with China for a possible free trade agreement, in a signal that Canada’s businesses may be looking to benefit from political turmoil in other Western countries. Many observers expect trade between Canada and Mexico to also increase if relations worsen between Mexico and the US.

A closer look, however, reveals warning signs and hints that such indicators of growth may not tell the whole story, and may suggest more optimism for the future than is actually warranted. The 2.6% rate of GDP growth from December is impressive indeed, but was largely prompted by an increase in household consumption and spending on financial services, rather than sustainable growth engines. 

The Bank of Montreal reported that it made about $1.5 billion in the past 3 months, a 40% increase over the same period the previous year. Others such as the Royal Bank and CIBC also experienced double-digit growth. As Canada’s GDP enjoyed its recent 4th quarter rise, overall business investment declined by 2.1% over the same period.

The $923 million trade surplus came despite a 1% increase in imports and a 1.4% decrease in volume of exports. The bulk of the surplus came as a result of higher global oil prices, giving Canada a better profit margin on its sales. Increasing revenue numbers are all to the good, but such deep links between a country’s fortunes and world commodity prices may not always turn out so well.

Meanwhile, moves toward alternative energy systems continue to gain steam. Tesla Motors has spurred much of the auto industry toward production of electric cars, while SolarCity (owned by Tesla) is pursuing its ambitious plans to connect much of the US to solar grids. Successes here will mean replication elsewhere, as countries and consumers looking to wean themselves off of oil could see their opportunity.

Regarding employment, of the 48,300 jobs added in January, 67% of them were for part-time positions and 88% were in the services sector. Trends in Canada, as elsewhere, have seen increased participation in the “sharing economy”, coinciding with the rise of companies like Uber, Lyft and Airbnb. Between November 2015 and October 2016, 2.7 million Canadian adults reported participating in the sharing economy, whose critics complain of low wages for workers as well as a distortion of real estate prices.

Canada remains hopeful that its continued positive relationship with the US and with other world powers lead to strengthening economic numbers in the years and decades to come. As with all countries in this changing economic landscape, however, success will most likely depend on how well Canada focuses on anticipation and adaptation, as new industrial and political realities unfold around it.

(primary source: http://www.cbc.ca/news/business/canada-gdp-q4-2016-1.4006233)