Friday's weak Canadian GDP results were no surprise to investors in the domestic energy sector where slowing profit growth provided a clear warning of slower exports.
Statistics Canada reported third-quarter economic expansion of 0.6 per cent, down from the previous quarter's 1.8-per-cent pace. Canadian consumers held up their end, adding 0.5 per cent to growth but a sharp decline in exports subtracted 0.6 per cent.
A 6.4-per-cent fall in energy exports was the driving force behind the 2-per-cent reduction in Canadian exports overall. In hindsight, the market should have seen the disappointment coming.
The chart to the left shows the connection between total Canadian exports of energy and profits ( earnings before interest and taxation) in the broad S&P/TSX Energy Sector Index. The reasons for the relationship are obvious – more exports means more profits for producers – but the corporate profit results are released well in advance of the trade statistics. In effect, the profit results for energy companies successfully predicted the fall in exports that pushed gross domestic product below economist expectations.
Reporting season for the current period heats up in late January with Suncor's profit results. As more companies report, investors will have a clear indication of Canadian export growth and the economy as a whole.