Under the Weather:  Canada’s Economic Performance

It’s fall:  time to ramp up Canada’s economy! Possibly the only good news in Statistics Canada’s August 31 report on Gross domestic product, income and expenditure, for the second quarter 2016, was that Canada’s household savings rate was 4.2%, up from 4.1% in the first quarter.

But, the household debt service ratio also increased, meaning interest and payment obligations grew within a gloomy economy.  More from the report:

1. Real GDP Lags.  Real GDP fell 1.6% in the second quarter, expressed at an annualized rate. In the US, by comparison, real GDP grew 1.1%.  However, when the impact of weakness in the energy sector was factored out, real GDP in Canada grew 0.1%.  
2. Exports Lag.   Exports of goods and services were down 4.5% in the second quarter, following a 1.9% increase in the first quarter.  Exports of goods decline by 5.5%, while exports of services grew 0.6%. This was the largest decline in exports since the first quarter of 2009.
3. Imports Grow Slightly.  Imports rose 0.3% in the second quarter, slightly below the 0.4% gain in the first quarter. Imports of goods increased 0.3%; imports of services were unchanged.
4. Households Spend Less on Cars.  Canadians spent more on food, beverages and accommodation and the operation of transport equipment and utilities, but for the first time after four consecutive quarterly increases, vehicle purchases decreased by 1.2%.
5. Canadians Travel More Abroad.  Higher outbound travel and a rise in the Canadian dollar against the US dollars resulted in a 2.1%
6. Business Investment Declined Again.  It was down 0.1%, the same pace of decline as last quarter. Significantly this was the sixth consecutive quarter in which Canada’s business community suffered a contraction.  On the good news side, investments in intellectual property products held steady after five quarters of decline.   
7. Surpluses Shrunk, Especially in Financial Corporations. The gross operating surplus of corporations decreased 3.0%.  The decline was 0.3% in non-financial corporations.  But in financial corporations there was a steep decline of 28.5%, largely due to Fort McMurray insurance payouts.
8. A Bright Spot:  Wages Increased.  Wages and salaries went up by 0.4% and social contribution by employers rose 0.5% in the second quarter.

Knowledge Bureau will discuss the impact of year end economic performance and its effect on year end tax planning and investing, at the Distinguished Advisor Workshops which is coming: October 27 – Vancouver at the Sandman Inn Vancouver Airport, November 1 – Winnipeg at the Canad Inn Polo Park, November 2 – Toronto at the Pearson Convention Centre, November 3 – Calgary at the Clarion Conference Centre, and the Distinguished Advisor Conference. For more information, call 1-866-953-4769 or visit www.knowledgebureau.com.

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