The Canadian economy expanded at a pace of 1.7 per cent over the final three months of 2017, slightly below the 2.0 per cent gain expected by most economists, Statistics Canada reported Friday.
The agency’s latest numbers for real gross domestic product showed the economy grew 3.0 per cent for all of 2017, compared to 1.4 per cent in 2016.
The fourth-quarter expansion of 1.7 per cent came in higher than growth in the third quarter, which stood at 1.5 per cent and was well below the rapid growth seen in the first half of the year.
Paul Ferley, Assistant Chief Economist at RBC, said the slowdown in growth over the second half of last year is not such a bad thing and will help insure the economy does not move too far into excess demand and stoke inflation pressures.
“In fact the intent of policy going forward will be to sustain growth close to the economy’s potential rate, which is assumed to be around 1.6 per cent,” Ferley wrote in a research note.
Growth in the fourth quarter was driven by a 2.3 per cent increase in business investment compared with the third quarter, and a 0.5 per cent quarter-over-quarter rise in household spending, the report said.
“Canadian business, governments and households are spending with abandon, so they aren’t to blame for a slower pace to growth in the latter half of 2017,” Avery Shenfeld, Managing Director and Chief Economist of CIBC Capital Market, wrote in an analysis note to clients.
“It’s our trading partners, who aren’t as enthusiastic about what we have to sell them, who have been the trouble spot for production here.”
For all of 2017, the agency said household spending easily made the biggest contribution to growth, followed by inventory and business investment.
“Remember those big government infrastructure plans?” Shenfeld said. “They finally showed up in both of the final two quarters of 2017.”
By industry throughout 2017, the report said the growth was “widespread” with 18 of the 20 sectors showing increases.
Goods-producing industries expanded 4.6 per cent, compared to two-straight annual contractions of 0.5 per cent in 2016 and 1.7 per cent in 2015. The biggest contribution to growth from the goods-producing industries in 2017 came from natural resources extraction, which expanded 7.8 per cent.
Services industries expanded 2.8 per cent last year for their highest pace of growth since 2011. It was led by a 7.5 per cent boost from the wholesale-trade sector.
Bank of Canada to wait and see on interest rates
However, given the slowing pace of growth and trade uncertainty most economists expect Bank of Canada will want to see some evidence that growth is rebounding to above potential before hiking interest rates again.
“Given the hike in January and the Q4 growth coming in slightly below the Bank’s projected increase of 2.5 per cent, though, our expectation is that the central bank will remain on the sidelines at the next Wednesday’s policy meeting,” Ferley said.
With files from The Canadian Press