OTTAWA — Canada’s economy suffered through the worst quarter in more than a year during the first three months of 2014, with output falling to a surprisingly weak 1.2 per cent annualized as activity slowed in many key sectors.
The poor performance, although it will be partially blamed on the unusually harsh winter, constituted the slowest quarterly growth since the fourth quarter of 2012, when the growth rate was 0.9 per cent.
As well, for the month of March alone, gross domestic product inched forward by only 0.1 per cent, suggesting a rather weak hand off to the second-quarter period.
Statistics Canada also revised downward the fourth quarter growth rate from the previously reported 2.9 to 2.7, and January’s strong 0.5 per cent GDP reading was trimmed back to 0.4.
Still, it was better than what occurred in the United States, where the poor weather likely had an even bigger impact. There the first quarter saw the economy actually contract by one per cent.
But the soft quarter in Canada will still surprise markets and economists, who had been counting on a 1.8 per cent advance. Even the Bank of Canada _ which has been rather bearish about the economy in recent months _ predicted 1.5 per cent growth.
For the central bank, the most disappointing aspect of Friday’s Statistics Canada report will be that business investment in machinery and equipment fell by 1.5 per cent from the fourth quarter, with spending in computers falling 4.1 per cent.
Bank of Canada governor Stephen Poloz has been calling on businesses to pick up their investment, particularly as profits have been strong, to improve productivity and take the economy into the next phase of the recovery.
The report will likely play a role in how the central bank approaches its interest rate announcement next week, increasing the odds that Poloz will continue to maintain a dovish stance and signal his intention to keep borrowing costs at super-low levels longer.
The details of Friday’s report were as weak as the headline.
Final domestic demand slid by 0.1 per cent in quarter-over-quarter comparisons, business capital formation fell 0.9, exports fell 0.6 and exports of goods fell 0.8, business
construction in residential structures dropped 1.6 and new home construction decreased 1.5, while real estate activity plunged 6.4 per cent.
The major strength in the economy remained Canada’s resource sector, particularly the oil patch. Mining and oil and gas extraction grew a robust 2.4 per cent in the first quarter over the previous quarter, while utilities increased by 1.2 per cent.
Overall, the services sector increased by 0.3 per cent quarter-over-quarter, while the goods producing industries increased by 0.6 per cent.
In a welcome development for governments, the agency says nominal GDP increased by 1.7 per cent over the previous quarter, largely because export prices rose by 5.3 per cent, the most in almost six years. Nominal GDP, which tracks the value of economic activity, is critical to tax revenues.
The agency also reported that the household savings rate improved, rising to 4.9 per cent from 4.8 per cent in the previous quarter, as disposable income increased at a slighter faster pace than household spending.