Canadian economy stuck in neutral

Canada’s economic expansion slowed to a crawl in the third quarter, growing by 0.1 per cent in the three months ended September and expanding at a pace of less than one per cent for the year as a whole, according to data released today.

Statistics Canada said Friday the country’s gross domestic product expanded at a 0.6 per cent annualized pace, down from 0.8 per cent during the second quarter because of less investment by businesses and slumping exports.

For comparison purposes, the U.S. economy is currently expanding at a 2.7 per cent annual pace.

Canadian exports shrank by two per cent during the period, the largest decline since the second quarter of 2009.

Emanuella Enenajor, an economist at CIBC World Markets, says the domestic demand helped offset Canada’s weak exports during the quarter.

Housing slowdown

“Growth in the quarter was almost entirely driven by household consumption,” Enenajor wrote in a note.

Desjardins Capital Markets economist Jimmy Jean noted that without the inventory buildup of as yet unshipped goods, Canada’s third quarter economy would have fallen into a hole.

There has been no talk yet of a technical recession — defined as two consecutive three-month periods of contraction — but Jean said the outlook for the last quarter of 2012 is not good.

The slowdown in Canada’s housing market also turned up in Statistics Canada numbers. Business investment in housing declined by 0.9 per cent in the quarter, even as renovation activity increased by the same amount.

The housing market had the wind knocked out of its sails in July when Finance Minister Jim Flaherty moved to tighten lending rules, capping insured mortgages at 25 years.

Jean said he believes the decision was still the correct one, although the economy is paying a price now.

“Yes, it is affecting the economy and it’s creating a drag, but on a long-term perspective it’s still the better outcome than facing a pure housing market crash and not having done anything about it,” he said.

Reprinted with permission from