Canadian real GDP growth rebounded in the first quarter increasing at a 2.5% annualized rate, according to figures released this morning by Statistics Canada.
This represented a sharp improvement from the 0.9% and 0.8% increases in the third and fourth quarters of 2012 even though these growth rates were revised up from the previously reported 0.7% and 0.6% respectively. Growth rates in the first and second quarters of 2012 were revised lower, though, resulting in a slower 2012 growth rate of 1.7% compared to the 1.8% previously reported.
Expectations going into the Q1 GDP report were for a 2.3% annualized increase in the first quarter.
The biggest support for growth in the first quarter came from net exports with a 6.2% annualized increase in exports solidly outpacing a 1.2% annualized gain in imports. Inventories also made a bigger than expected contribution to real GDP in the quarter adding 0.5 ppts.
Consumer spending disappointed expectations and increased at a paltry 0.9% annualized pace in the quarter. Business investment also proved weaker than expected with spending on nonresidential structures increasing by just 1.5% while spending on machinery and equipment dipped by 0.7%. Residential construction fell however the 4.7% annualized dip was less than the 7.8% decline we expected.
Also released this morning was the March GDP report which showed the economy expanded by 0.2%, slightly slower than the 0.3% gains in January and February but stronger than the 0.1% expected.
Manufacturing and wholesale trade each posted a 0.2% monthly decline, however, this was offset by strength in retail sales (+0.5%) and big increases in oil and gas extraction and mining production.
Real GDP in the services sector increased by 0.2% in March with real estate commissions posting a 3.8% jump that more than offset the 1.1% drop in February.
The stronger-than-expected rise in March GDP provides a solid hand off to the second quarter and supports our forecast that the economy will continue to grow at its potential rate.
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