Canadians have been patting themselves on the back in recent years over the country’s economic resilience in the wake of the financial crisis, but if recent data is anything to go by, our days of economic supremacy may be numbered.
Canada’s economy grew at slightly more than one-fifth the pace of the U.S. economy in the third quarter of 2012, according to data from StatsCan and the U.S. Bureau of Labor Statistics. While Canada’s growth amounted to 0.6 per cent at annualized pace, the U.S. saw GDP growth of 2.7 per cent in the same period, according to recently revised figures.
“Canada (and its central banker) got a lot of accolades by leading the pack out of recession, but there’s little reason for back-patting in the evident slowdown taking hold this year,” CIBC economist Avery Shenfeld wrote in a note to clients.
“A disappointing third quarter left Canada’s growth over the past year a full percentage point behind that of the U.S. Much of the blame for the third quarter slumber can be heaped on weakness abroad and energy disruptions that smacked down exports, but even on the home front, some former stars like housing are now faltering.”
STORY CONTINUES BELOW SLIDESHOW
Northwest Territories: -5.1%
The Northwest Territories were the only jurisdiction in Canada that saw a negative growth rate in 2011, largely due to a decline in diamond exports. Source: StatsCan Photo: Alamy
New Brunswick: 0%
New Brunswick's economy flatlined in 2011 due to lacklustre business investment and a pull-back in government spending. Source: StatsCan Photo: Shutterstock
Nova Scotia: 0.5%
Business investment grew strongly but consumer spending was weak in Atlantic Canada's most populous province in 2011. Source: StatsCan Photo: Alamy
Prince Edward Island: 1.6%
Business investment grew rapidly but foreign trade declined in Canada's smallest province in 2011. Source: StatsCan Photo: Shutterstock
Canada's most populous province didn't grow as strongly in 2011 as it did in 2010, but a big jump in imports and exports helped to keep the province in positive territory. Source: StatsCan Photo: Canadian Press
Consumer spending helped keep Quebec afloat in 2011, despite a major slowdown in business investment into the housing sector. Source: StatsCan Photo: Alamy
Heavy rains and flooding put a damper on economic growth in Manitoba in 2011, but the province still saw a significant increase in consumer demand. Source: StatsCan Photo: Alamy
British Columbia: 2.8%
Business investment in housing in B.C. in 2011 grew at double the rate of 2010, helping the province to a solid economic performance. Source: StatsCan Photo: Canadian Press
Construction for the oil, gas and mining sectors boomed in Newfoundland in 2011, helping to propel the island to one of the higher growth rates seen among Canadian provinces. Source: StatsCan Photo: Alamy
Nunvaut's 4.6 per cent growth rate in 2011 is nothing compared to its 16.6 per cent growth rate the year before, but the territory booming gold and silver mining sectors are still humming along nicely. Source: StatsCan Photo: Alamy
Growing oil exports and a housing investment boom drove Saskatchewan's economy to an impressive growth rate in 2011. Source: StatsCan Photo: Alamy
The fastest-growing province in Canada in 2011 saw its exports jump a formidable 9.2 per cent over the course of the year. Source: StatsCan Photo: Canadian Press
Yukon Territory: 6.5%
The Yukon hasn't been thought of as a boom region since the Gold Rush of the 19th century, but mineral exploration is still driving its economy today. At 6.5 per cent, the territory had the fastest economic growth in 2011 of any Canadian jurisdiction. Source: StatsCan Photo: Alamy
The GDP numbers join a raft of data suggesting Canada’s economic performance is no longer exceeding the U.S.’s.
On jobs, Canada and the U.S.now appear fairly evenly matched. The U.S.’s long struggling job market has now posted 25 consecutive months of growth, and Canada’s unemployment rate in October, 7.4 per cent, is now just half a percentage point lower than the U.S.’s 7.9 per cent rate for the same month.
In the 12 months leading up to October, the U.S. created 1.95 million jobs, according to Bureau of Labor Statistics data, while Canada created 246,000 jobs, according to StatsCan. Relative to population these are very similar numbers — a far cry from the superior job creation numbers Canada saw in the years after the 2008 financial crisis.
Digging into the details, the Canadian and U.S. economies are moving in significantly different directions. StatsCan attributed Canada’s underwhelming economic performance in the third quarter to weakening exports (down 7.8 per cent, the largest slide in more than three years) and on weakening residential investment due to a slowdown in housing (down 3.5 per cent).
What rescued Canada from a really dismal quarter was consumer spending, which offset some of the slide in housing investment (up 3.1 per cent).
Meanwhile, the U.S. housing market is showing signs of solid recovery, but its consumer spending is showing signs of weakness. Housing starts south of the border saw their biggest jump in four years in October, while consumer spending dipped 0.2 per cent in October, though much of that drop is attributed to Hurricane Sandy.
For two economies so closely linked — 73 per cent of Canada’s exports go to the U.S. — that is a striking divergence in economic conditions.
CIBC’s Shenfeld predicts more of the same in 2013, with “housing remaining a drag, government restraint still a factor, and the global economy still too sluggish to provide a sufficient offset.”
But BMO economist Benjamin Reitzes points out a bright spot for borrowers in all of this. With economic growth and inflation now running below target, “it’s clear that [interest] rate hikes remain a long way off in Canada.”