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GDP (% Yearly Change) vs. Productivity (% Yearly Change)

Canadian Gross Domestic Product vs. Productivity Growth




Canadian Gross Domestic Product vs. Productivity
(Year to Quarter)
Quarter/Year GDP (% Change) Productivity (% Change)
IV/2014
3.8
1.8
I/2015
2.3
2.1
II/2015
1.4
-0.4
III/2015
0.4
-0.75
IV/2015
-0.06
-1.5
I/2016
-0.83
-0.5
II/2016
0.7
0.2
III/2016
1.2
1.5
IV/2016
2.0
1.7
I/2017
2.4
2.6
II/2017
4.5
2.9
III/2017
3.2
0.76
IV/2017
4.9
1.3
I/2018
2.6
-0.6
II/2018
1.7
0
III/2018
1.9
1


* Revised from Final Report


If you haven't done so yet, we recommend that you review the section on how we suggest this data should be interpeted.


Economic Analysis

Unless otherwise stated all references to Gross Domestic Product (GDP) or Productivity is based on year to quarter data.

Canadian GDP

For the entire 2017 year, Canadian GDP grew about 3%. Productivity was mostly positve. Much of the growth has been fueled by Canadian household spending. But household debt and slowing wage growth spells trouble for the economy continuing in that direction. It is hoped that businesses will pickup much of the slack. However, if households are over leveraged, businesses may not be able to do so. Many are now saying that the pace of economic growth has slowed and will continue to slow more. Our reading of Canadian economic data indicates to us that the Canadian economy has not slowed appreciatably but rather growth is near stagnant or increasing slightly. The chart above indicates this.

There are headwinds. Spending on new homes has decreased as has renovations to existing homes. The debt level of Canadian households is high. This is an indication that Canadian families cannot live on their income alone. They are supplementing with credit. This is unsustainable and never a good sign.

Oil

The largest industry in Canada is the petroleum industry. Canada is the fourth largest producer of oil in the world. It accounts for about 10% of the Canadian economy. There has been some handwringing over the falling price of crude. The problem is temporary. For the last two years Russia and the Opec countries have tried to manage the world's oil supply, hopefully increasing its price. However, as has been the case in the past, Opec producers pumped more oil than they pledged. This has increased supplies further. Also, this time of year refiners switch to producing more profitable home heating and diesel fuel. Come this Spring they will go back to gasoline. This is a supply problem. Plus, over the past number of years there have been an number of technological advancements that now make US$35/barrel oil profitable for many companies.

Basicly though, Canada has only one customer. 99% of exports goes to the United States. The problem with the Canadian Oil Industry is the shortage of pipline capacity both within Canada and to the United States. This has caused many to ship by costly rail and a large drop in the price of Canadian crude with respect to West Texas Intermediate benchmark reducing profit. This is a bigger threat to the industry than the price of oil itself.

United States

The biggest threat to Canada is the U.S. economy. The U.S. economy is slowing so businesses in Canada should take note.


Raymond D. Matkowsky


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