Week ahead: Weak GDP growth expected

Week ahead: Weak GDP growth expected

Derek Abma, Financial Post  Published: Friday, January 22, 2010 Economists are expecting Canadian GDP to have grown by 0.3% in November.

OTTAWA – Broad-based accounts of economic performance in both Canada and the United States in late 2009 are due in the coming week.

On Friday, Statistics Canada will be reporting gross domestic product for this country in November. On the same day south of the border, the Department of Commerce will provide the first of its three assessments of fourth-quarter GDP.

For Canada, economists are expecting GDP to have grown by 0.3% in November. That would compare with an expansion of 0.2% in October, which was the second straight month of growth.

Millan Mulraine, economics strategist with TD Securities, is a little more skeptical than the pack, forecasting November’s growth to merely match that for October.

“The recovery in the Canadian economy has been quite slow, as the combination of a strong domestic currency and weak U.S. demand continues to wreak havoc on the export-dependent Canadian economy, even in the face of strong domestic fundamentals,” he said in a research note.

Mr. Mulraine cited factors such as the housing market and wholesale sector as providing “favourable support” to GDP in November, with such effects offset by “weak consumer spending” and “soft manufacturing sector activity.”

CIBC World Markets economist Meny Grauman is even more pessimistic, calling for 0.1% growth in November. He wrote: “Although the outlook for the quarter as a whole remains quite good, that will largely depend on just how strong December turns out to be, as November looks like a dud.

“Despite expected gains in wholesaling and a number of other service sectors like finance and real estate, weakness in manufacturing and retail should keep the monthly print to only a disappointing 0.1% gain.”

CIBC is calling for annualized fourth-quarter growth of 3.5%. Canada recorded a 0.1% gain in the third quarter. That broke a three-quarter recession that started in late 2008. Canada’s fourth-quarter results are to be reported March 1.

Turning to the U.S., it is expected that the coming week’s report will indicate 4.5% annualized growth in the fourth quarter. That’s up from 2.2% in third quarter, which also marked the end of the recession there.

James Marple, an economist with TD, forecast that the U.S. GDP report will show 5% growth, largely as a result of a slower depletion in inventories.

“After a rather meek reading of 2.2% . . . for the final estimate of third-quarter U.S. real GDP growth, the fourth quarter of the year should be the first to resemble anything like a post-recession bounce,” Mr. Marple wrote. “Unfortunately, the rebound is not due to any new-found economic dynamism, but rather to a slowing pace of inventory liquidation after deep cuts earlier in the year.”

He said there was slower growth in U.S. consumer spending compared to the third quarter, and “business fixed investment remained another source of weakness.”

As for other Canadian economic reports in the coming week, payroll data from November is due Thursday, while prices for industrial products and raw materials from December will be reported Friday.

Also, earnings reports are coming from companies such as Canadian National Railway Co. on Tuesday and Tembec Inc. on Thursday.

Besides the GDP report in the U.S., the Federal Reserve will announce a decision on interest rates on Wednesday. It’s widely expected to keep the target rate at between zero and 0.25%. There will also be an array of data on the housing industry there. Existing-home sales are to be reported Monday, new-home sales are due Wednesday and the S&P/Case Shiller home price index will be released Tuesday.

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