Wednesday, June 4, 2014

Slowdown of the Canadian Economy over the First Quarter of 2014

The slowdown of the US economy has affected Canada.

The Canadian economy performed well last year with real gross domestic product (GDP) growth rate rising continuously from .22 % at the end of 2012 to reach .81 % at the end of last year. This year, growth has slowed down. Real GDP growth rate fell to .33 %. However, that is better than the United States where growth rate was -.25 % and worse than the United Kingdom that experienced a growth rate of .81 % the first quarter of this year. 

Real GDP Growth Rate, Canada, United States (US), and the United Kingdom (UK), 1981:Q1-2014:Q1, Data Sources: Statistics Canada (Canada), Federal Reserve Bank of St Louis (US), Office for National Statistics (UK)
Figure 1: Real GDP Growth Rate, Canada, United States (US), and the United Kingdom (UK), 1981:Q1-2014:Q1, Data Sources: Statistics Canada (Canada), Federal Reserve Bank of St Louis (US), Office for National Statistics (UK)
As one could see in the figure below, the slowdown in Canada’s GDP growth comes from the slowdown in household final consumption growth and the fall in both business investment and exports. 

Growth Rate of GDP Components, Canada, 2013:Q1-2014:Q1, Data Source: Statistics Canada
Figure 2: Growth Rate of GDP Components, Canada, 2013:Q1-2014:Q1, Data Source: Statistics Canada
Real household final consumption growth rate fell by half between the last quarter of 2013 and the first quarter of 2014. It went down from .6 % to .3 %. This may be attributable to the rise in the cost of living. As a matter of fact, Canada experienced a .9 % inflation over the first quarter of this year.

Canada’s imports fell by 2.1 % due to the depreciation of our currency. At the beginning of the quarter, one Canadian dollar was worth US$ .94 and £ .57. At the end of the quarter, the Canadian dollar fell to US$ .9 and £ .54. Imports fell because it became more expensive for Canadian to purchase items made abroad. In the same time, Canadian exports were expected to rise because items made in Canada became cheaper abroad but they fell instead by .8%.
Figure 3: One Canadian Dollar in terms of the US Dollar and the Pound Sterling, Jan 2 to Mar 31, 2014, Data Source: Bank of Canada
Figure 3: One Canadian Dollar in terms of the US Dollar and the Pound Sterling, Jan 2 to Mar 31, 2014, Data Source: Bank of Canada
The fall in our exports in spite of the depreciation of our currency has to do with the poor performance of the US economy, our main trading partner