Economic Outlook: Canada's Economy is Stuck in the Muck

April 29, 2019


  • Canada’s economy sharply contracted at the end of 2018. Its gross domestic product fell over the full year, even as U.S. economic growth (which it tends to track) accelerated for the 12-month period. 
  • The U.S. had a sluggish first quarter and Treasury yield-curve inversion, which raised concerns about the bull market’s health—but economic and financial fundamentals remain strong. 
  • Until we see a more significant deterioration in the U.S. outlook, our default investment stance is to stay the course.

Canada’s economy ended 2018 on a sour note. Monthly gross domestic product (GDP) fell in both November and December as goods-producing industries contracted sharply. The quarter-to-quarter change in inflation-adjusted GDP inched up by only 0.4% at a seasonally-adjusted annual rate. Fixed investment (residential and non-residential) accounted for most of the weakness, subtracting more than two percentage points from the economy’s quarter-to-quarter (annualized) performance. This marked the third consecutive quarter of negative performance for this component of GDP.  Canada’s GDP growth typically tracks that of its large neighbour to the south rather closely. That was not the case last year. While the U.S. economy accelerated over the course of the year, Canada’s year-over-year growth went in the opposite direction. 

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