Dead slow and....stop?

There has been plenty of evidence in recent months to show that the Canadian economy has been losing momentum. This past week Statistics Canada confirmed this with its release of the broadest indicator of all, real GDP.  In the fourth quarter of 2019, real GDP grew at an annualized rate of just 0.3 percent, the slowest pace in four years.  Growth in Q3 was also revised down to an annualized 1.1 percent from the already paltry 1.3 percent previously reported. Growth for the full year was 1.6 percent, down from 2 percent in 2018. 

The nugatory pace of growth at the end of last year reflected several factors, among them pipeline shutdowns, the spillover effects of a strike at GM in the United States and an eight-day nationwide strike at CN rail.  While household spending remained strong in the quarter, both business investment and exports were notably weak.

There is precious little reason to expect a return to faster growth any time soon.  Most notably, the rail blockades in effect for more than two weeks in late January and early February undoubtedly curbed economic activity in eastern Canada, although the efforts at creating work-arounds by CN and CP may have helped to limit the impact.  The impact of the coronavirus outbreak is also likely to be felt to an increasing degree in the coming weeks. It is hard to visualize any growth in real GDP in the current quarter, and with March almost certain to provide a weak hand-off into Q2, the economy may well soon meet the criterion for an official recession. 

Central banks are widely expected to ride to the rescue of the global economy soon with a raft of interest rate cuts, and there is little doubt that the Bank of Canada will join in.  Whether the current circumstances will prove amenable to monetary stimulus remains to be seen: if the virus erodes confidence among both businesses and consumers, it is hard to see rate cuts having much of an impact on demand and growth. 

Lower rates might at best provide some relief for heavily indebted businesses, helping to offset the cashflow impact of the coronavirus. That seems likely to be cold comfort in the weeks and months ahead, based on the way the virus seems to be spreading.