In the past one year, Canada’s economy has blown past expectations, fully emerging from the doldrums it has been in since the oil slump began in early 2015. Our economy, is in fact, expanding at its fastest annualized pace since 2011, a resounding 4.5 percent this quarter alone.
For better context, consider that the United States charted an annualized growth rate of three percent in that same time frame — Canada is essentially the fastest growing economy among all G7 countries right now.
So what are getting right? Why is our economy roaring ahead?
Canadian consumers are spending like never before
As I highlighted in a recent article, Canadian consumers are on a spending binge of sorts, propelled somewhat by job gains and the confidence the Bank of Canada has generated in our economy when they finally raised interest rates back in July.
Household spending rose by 4.6 percent, but what was even more notable was our savings rate. Healthy job gains, according to TD Bank economist Brian DePratto, helped boost incomes and was sufficient enough to bring the household savings rate up a notch to 4.6 percent, from 4.3 percent in the first quarter of this year. Good on us for not spending by borrowing more.
Foreign economies are doing well
Canada is a resource-rich nation. We’re hence quite dependent on other countries buying our resources — oil, gas, minerals, agri-products. Between March and June of this year, our trade balance was positive, indicating that our export growth (9.6 percent) outpaced our import growth (7.4 percent).
That’s not altogether surprising. Both the Chinese and American economies, the world’s biggest, have been on a growth streak of late. Because we’re selling goods and services to these economies in bulk (the U.S. is our largest trading partner and China is our third largest trading partner), we’re benefitting from their strong growth rates.
Canadian companies are also on a spending spree
Thursday’s GDP data showed a strong gain in non-residential investment — expenditures by firms on structures and equipment rose by 7.1 percent, while spending on intellectual property grew by 8.7 percent. Private sector spending by firms is crucial to economic growth, because it generates movement in sub-sectors of the economy — firms purchasing machinery for instance, will help companies that build machines, which means more jobs for people who know how to build machines.
What about oil?
Crude oil prices have moved modestly higher of late, and because that’s the strain of oil that Alberta’s oil sands generates, those prices matter most to our economy. They’re still not at those pre-2015 numbers of $105 per barrel, but they’re decent, hovering around the $45-$55 mark since last September. Alberta’s oil production levels increased in May and June, and overall investment in the energy sector has seen a bit of an uptick — in the short-run at least, that boosts our GDP.
As a matter of fact, Canadian oil refineries are expected to register higher profits in August because of Hurricane Harvey — U.S. Gulf Coast refineries were shut down for a couple of days, and industry experts expect outages to be ongoing for the next few months.