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Economy to pick up in first quarter before braking again

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Expect to see proof this week that Canada's economy has rebounded from the dismal showing of late last year. The question, though, is where it goes from here.

Economists expect Statistics Canada to report Friday that gross domestic product expanded at an annual pace in the range of 2.2 per cent to 2.6 per cent in the first quarter of the year.

That would be well above the fourth-quarter pace of only 0.6 per cent and would end the string of four consecutive quarters of growth below the 2-per-cent mark.

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"They say good things come to those who wait, and for Canada, a long spell of economic drought will finally be quenched by a quarter of solid growth to start 2013," said Emanuella Enenajor of CIBC World Markets.

"After nearly a year of languid exports, shipments abroad soared in Q1, driven by rebounding resource production. Real consumer spending growth may have also looked healthy, as weak inflationary pressures helped to boost household purchasing power."

A weaker housing market and slower government spending are believed to have weighed down the number.

Ms. Enenajor expects the report will show economic growth of 2.6 per cent, which would be well above what the Bank of Canada has projected.

"That suggests 2013 growth could track 1.7 per cent, two ticks above the pace the bank was eyeing," she added, expecting second-quarter growth to slow to about 2 per cent.

Ms. Enenajor is not alone.

"While our headline call is decent on the surface, domestic demand growth is expected to be very muted – a trend which looks to persist amid high household debt levels, a slowdown in housing and government restraint," said senior economist Benjamin Reitzes of BMO Nesbitt Burns, referring to BMO's projection of a 2.3-per-cent growth rate.

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He, too, expects economic growth will "decelerate modestly" in the second quarter before picking up speed down the road.

And though the first quarter is expected to come in better than observers had expected earlier, "looking ahead Canada's economic performance is likely to be uneven as our most important trading partner continues to face a significant fiscal drag to its economy," said Toronto-Dominion Bank economist Leslie Preston.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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