The Canadian economy expanded 3% for all of 2017, which was the fastest rate of growth in six years. Real final domestic demand mirrored the total economy and advanced 3% last year.

Nonetheless economic growth decelerated sharply in the last two quarters of 2017. At annual rates real GDP expanded 4% in Q1 and 4.4% in Q2, and then growth slowed dramatically to 1.5% in Q3 and 1.7% in the fourth quarter.

In the relatively slow growth fourth quarter, domestic demand provided a positive offset to weak foreign trade, as there were significant gains in consumer spending, government spending, business investment and residential construction.

Consumer expenditures rose at a 2.3% annual rate in the fourth quarter, while residential construction soared at a 13.1% pace. Consumer spending was supported by a solid expansion in real disposable income in the fourth quarter, even though the personal savings rate increased.

As expected, foreign trade was a negative contributor to Canada’s economy in the fourth quarter, as imports of goods and services rose at a 6.3% pace, while exports rose only 3%.

In conclusion, it was generally expected that the unusually rapid growth in the first half of last year could not be sustained, so some slowing was in the cards.

Nonetheless, there is still room for Canadian economic growth in the short term, with the economy expanding by as much as 2% in 2018.

After all, monetary policy is still quite accommodative, the Canadian exchange rate is quite weak which provides exporters with a bit of a boost, there were minimum-wage increases in Ontario and Alberta and higher-than-expected budget surpluses in two large Canadian provinces (Quebec and Ontario), and the surpluses could end up being spent in this election year.

As well, it is worth noting that inventories declined in the fourth quarter of 2017, which suggests stronger production in Q1 and Q2 of 2018.

Unfortunately, looking beyond the short term one sees a range of possible negatives for the Canadian economy.

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