OTTAWA – The Canadian economy suffered through its second consecutive below-par quarter at the end of 2012, setting the stage for another year of disappointing growth and job creation in 2013.
Statistics Canada reported Friday that the economy squeezed out a mere 0.6 per cent advance in the last three months of last year — following a 0.7 per cent increase in the third quarter — and was on a downward path in the final month, when output retreated by 0.2 per cent.
The sickly production numbers were in line with economist expectations, but that is only because analysts had been hurriedly batting down their forecasts in the weeks before the report.
In reality, the final tally is still about half what the Bank of Canada had predicted in January, and about one-quarter what it had said was likely in October.
Still, economists cautioned the results could have been worse, and in fact expressed relief that most of the weakness in the fourth quarter was due to a $10.3-billion inventory write-down, rather than from a consumption collapse.
“Obviously the headline is pretty sour, but the details aren’t terrible,” said Doug Porter, deputy chief economist with BMO Capital Markets.
“There are actually are some slivers of good news. Things like consumer spending and business investment and even net exports were a little bit better than expected. It suggests the economy is still grinding ahead slowly but surely.”
The markets also saw it that way. The Canadian dollar was down initially on the news but quickly recovered and was modestly up to 97.01 cents US by mid-morning.
For 2012 overall, growth in Canada came in at 1.8 per cent, down from 2.6 per cent in 2011 and the weakest number since the end of the 2008-09 recession.
Many analysts now believe 2013 will be even weaker, at between one per cent and 1.5 per cent, assuming there is no major shock..
The StatsCan report drew calls from left-wing commentators for more government intervention, but that didn’t appear to sway Finance Minister Jim Flaherty.
“I think our results do reflect Canada’s solid economic and fiscal fundamentals, but they also reflect the uncertainty that we see abroad and weakness in the global recovery,” Flaherty said at a news conference Friday afternoon.
“What we can do in our country is, of course, control our own spending which is what we’re doing. We’re working hard on the budget.”
The budget, Flaherty added, won’t contain any new “risky spending schemes” and the government remains on track to balance the budget by 2015.
Erin Weir of the Progressive Economics Forum said both federal and provincial governments should invest in public services and infrastructure rather than continuing to pursue austerity measures that crimp growth.
In the Commons, NDP whip Nicole Turmel called continuing spending cuts while the economy sinks a “recipe for disaster.”
Conservative MP Shelly Glover, the parliamentary secretary for Flaherty, boasted that Canada still had the strongest growth rate of any Group of Seven economy in the fourth quarter.
Porter said Flaherty should not add to the woes, however, by stepping up austerity beyond what has already been planned.
Even as it is, Ottawa is likely to have suffered a revenue drain in 2012, when all the numbers are in, and will also in 2013. In last year’s spring budget, Flaherty had penciled in inflation-included GDP growth of 4.6 per cent — he only got 3.1 per cent.
This year’s expectation of 4.4 per cent nominal growth is also now in jeopardy.
There is also some question as to what the Bank of Canada will do next week at its scheduled interest rate announcement. The central bank has softened its language on possible interest rate hikes in recent months, and many expect governor Mark Carney to become even more dovish next Wednesday, while keeping the trendsetting rate at one per cent.
The fourth-quarter weakness was mostly due to a steep write-down in inventories, likely caused by business wariness over the fiscal cliff negotiations in the United States, which weren’t settled until the final day of December.
Minus inventories, final sales advanced a strong 3.2 per cent during the quarter annualized, as gross exports rose by 1.2 per cent, consumption by 2.7 per cent, business investment by 2.9 per cent and government capital spending by 2.4 per cent.