Canadian economy grew by 0.4% in Q1

Canada’s economy expanded at an annualized pace of just 0.4% in the first three months of the year, giving the country its weakest back-to-back quarters of growth since 2015.

The real gross domestic product reading for the first quarter followed a revised growth number of just 0.3% in the previous quarter, Statistics Canada said Friday in a new report.

It was the slowest two-quarter stretch of growth since an oil-price plunge caused the economy to shrink over the first half of 2015.

Economists had expected growth at an annualized rate of 0.7% for the first quarter, according to Thomson Reuters Eikon.

The Statistics Canada report said downward pressure on first-quarter growth was driven by weakness in net trade as imports increased 1.9% and export volumes dropped 1% for their first quarterly decrease since 2017.

Canada also saw a substantial contraction of 9.5% in its exports of farm and fishing products as well as a 2.8% drop in crude-oil shipments.

On the positive side, the agency said overall economic growth was boosted by the highest quarterly level of household spending in two years, following broad-based increases that included strength in auto purchases and audio-visual equipment.

The economy also saw an 8.7% increase in business investments on equipment and machinery—the biggest jolt in 23 years. The surge was fuelled in part by significant investments in aircraft and other transportation equipment, the report said.

Looking ahead, the report’s month-to-month reading for March—the final month of the first quarter—suggested the second quarter could be off to a stronger start. March posted a 0.5% increase compared to a 0.2% contraction in February.

The first-quarter reading Friday was slightly higher than the Bank of Canada’s prediction of 0.3%.

On Thursday, Carolyn Wilkins, the central bank’s senior deputy governor, said the recent economic slowdown was temporary. She said growth has already been accelerating in the second quarter—which the Bank of Canada has predicted will post 1.3% growth.

From there, Wilkins said Canada’s economic expansion should pick up its pace throughout the rest of 2019.

Even with the expected domestic improvement, she underlined risks to the outlook. She warned the highly uncertain international trade environment—including the ongoing U.S.-China trade war—poses a threat for Canada.

Wilkins also listed trade disruptions such as Beijing’s new restrictions on some Canadian agricultural products. A diplomatic conflict has intensified in recent months, leading China to reject shipments of some key Canadian goods, including canola.

The central bank is also monitoring the possibility of a trade feud between the U.S. and the European Union. U.S. President Donald Trump has threatened to apply tariffs on autos from the EU.

Andy Blatchford, The Canadian Press

Andy Blatchford is a reporter with The Canadian Press, a national news agency headquartered in Toronto and founded in 1917.