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Canadian GDP reveals 'somber story' as crude crash holds back economy

The Canadian economy slowed markedly in the fourth quarter. GDP grew just 0.8 percent in the last three months of 2015, as business investment dwindled and exports shrank. Even so, the loonie is rallying as growth exceeded Bay Street's low expectations.

A consensus of economists had predicted real GDP for the fourth quarter to produce a flat reading, according to Thomson Reuters.

However, there are clear signs of persistent weakness in Canada’s economy as a result of the collapse in crude price. Notably, business investment on non-residential structures, machinery and equipment plunged an annualized 12.4 percent in the final three months of 2015.

“On the face of it, fourth quarter GDP growth appears to have been a positive story,” TD economist Brian DePratto said in a note to clients. “Looking through the details however, a more somber story emerges as growth was largely helped along by a contraction in imports as domestic demand shrank

The economy fell into a technical recession at the start of 2015 when it contracted over the first two quarters by a revised 0.9 per cent and again by a revised 0.4 per cent. Real GDP increased by a revised 2.4 per cent in the third quarter.

The reading was released as the federal government prepares a spring budget expected to contain billions worth of commitments -- such as infrastructure spending -- that it insists will help revive economic growth and create jobs. The budget date is March 22.

Last week, the Liberal government acknowledged next year's deficit could surpass $20 billion -- and some observers believe it could reach as high as $30 billion.

Statistics Canada also said Tuesday that the country's terms of trade -- a measure of export prices relative to import prices -- sunk for the fifth consecutive quarter to reach its lowest level since late 2003.

Looking back at 2015, the agency found that the economy grew by 1.2 per cent -- less than half of the 2.5 per cent pace for 2014. Before that, the economy grew 2.2 per cent in 2013, 1.7 per cent in 2012 and 3.1 per cent in 2011.

The report said the 2015 reading was dragged down by a contraction of 4.8 per cent in business gross fixed capital formation, a category that includes buildings, machinery and intellectual property.

Statistics Canada said the decline, the first after five consecutive years of increases, was mostly due to a 12.7 per cent drop in business investment in non-residential structures.

Meanwhile, Canada's terms of trade shrunk by 6.9 per cent last year, which followed a 1.3 per cent decrease in 2014.

The agency also said real GDP grew at a month-to-month rate of 0.2 per cent in December, which followed monthly increases of 0.3 per cent in November and 0.1 per cent in October.

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