Real gross domestic product showed signs of renewed strength in 2016’s third quarter, increasing 0.9%, or 3.5% at an annualized rate, according to Statistics Canada.
Driving this growth was an 8.9% annualized increase in exports, mostly coming from the energy sector. Oil and gas production increased 3.8% and support activity grew 5%. This reflects a return to normal oil production after the sector was held back over the summer due to wildfires in Alberta.
In addition to solid Q3 GDP growth, StatsCan announced upward revisions to GDP growth figures for the first half of the year. BMO Economics’ Douglas Porter called this “encouraging,” and said there was “surprisingly solid performance” by the end of the most recent quarter, which indicates likely continuing growth in the year’s final quarter.
“For the first time in ages, this sets the stage for broad-based upward revisions to Canada’s overall GDP growth rate, for both 2016 and perhaps 2017,” Porter said in a note to investors.
“The latter could also be potentially fueled by firming oil prices (OPEC’s decision today will weigh heavily, of course), the improving tone in some other non-energy resource industries and the strong possibility that the U.S. is poised to unleash some serious fiscal stimulus in the coming year, and assuming that the worst impulses of the president-elect are reined in on the trade file.”
Household consumer spending increased 2.6% annualized, which was the highest quarterly increase in this category in a year.
Non-residential structure investment grew 15.7% in the quarter. However, investment in residential building fell 5.5%. Business equipment investment saw the biggest drop, declining 12.2%.
Porter said BMO now expects annual growth of 1.4% in 2016, revised up from a previous call of 1.2% and higher than the Bank of Canada’s forecast of 1.1%. In 2017, BMO forecasts growth around 2%, in line with the central bank’s call and up from BMO’s previous forecast of 1.9%.
“While admittedly not a big change, it’s the upward direction of the revisions that matters here, reinforcing the view that the Bank of Canada is not going anywhere with policy for a long time.”
In the U.S., the ADP employment survey released today showed 216,000 jobs were added in November south of the border. This strength pushed the U.S. dollar upward, which held the Canadian dollar back from growing on the release of the positive GDP growth and optimism that OPEC members would likely reach an agreement to cut production. As of press time, the Canadian dollar was trading at 74.5 cents U.S., down from 74.8 cents prior to the ADP announcement.
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