Friday, June 5, 2015

Why Did GDP in Canada Fall over the First Quarter of 2015?

Gross domestic product (GDP) fell by .1% last quarter in Canada as investment in both non-residential structures and machinery and equipment dropped.
Non-residential structures are buildings (offices, plants, shopping centers...) and infrastructure   (roads, bridge, water supply, sewers...). On the other hand, machinery and equipment consists of movables such as: furniture, vehicles, and hardware.

GDP, Investment in Non-Residential Structures and Machinery and Equipment, M$, Canada, 1981:Q1-2015:Q1, Source: Statistics Canada

GDP, Investment in Non-Residential Structures and Machinery and Equipment, M$, Canada, 1981:Q1-2015:Q1, Source: Statistics Canada

Investment in non-residential structures fell by 5.3% and investment in machinery and equipment fell by 2 %. This is the second consecutive quarter these aggregates are falling. This situation was due to the uncertainty that surrounded the future price of oil. Oil price plummeted in December and January to the extent that it became less profitable for firms in the oil and gas industry to keep producing.  
On average, the impact on GDP growth of a percentage point change in the investment in machinery and equipment is about .04 and is stronger that of the investment in structures.