Economy grows at 3.7% in Q1, fuelled by household spending, business investment

He said he’s now predicting growth for this year will come in at about 2.7 per cent, compared with an earlier prediction of 2.5 per cent.

“It’s not a big change, but every turn of the screw helps,” Porter said.

Despite the increase in the pace of growth, it was below expectations. Economists had estimated annualized growth of 3.9 per cent, according to Thomson Reuters.

And TD Bank senior economist Brian DePratto said there are issues lurking beneath the surface, including evidence that housing markets are beginning to cool off.

“At the same time, the environment for business investment should remain supportive, but elevated uncertainty is likely to cap the pace of growth,” he said in an analyst note.

“Consumers are likely to keep their wallets open, helped by past gains in housing wealth. But, it is again unlikely that the pace of first quarter growth, particularly for durable goods spending, can be maintained, and the credit-fuelled nature of recent spending growth remains concerning.”

In a separate report Wednesday, the International Monetary Fund said the Canadian economy has regained momentum, but that the risks to the outlook are significant. It raised concerns about household debt and the possibility of a correction in the housing market.

The IMF also said business investment remains weak, non-energy exports have underperformed and housing market imbalances have risen.

“Macroprudential policy needs to protect the resilience of the household and banking sector,” the IMF said.

It suggested a further tightening of tax-based measures to mitigate speculative investment in the housing sector and called for greater co-ordination between federal and provincial regulators.

Canadian economic growth in the first quarter came on multiple fronts.

Business investment in residential structures rose 3.7 per cent, boosted by new construction, the strong real estate market in Ontario and a gain in renovation activity.

After falling in four of the previous five quarters, investment in machinery and equipment advanced 5.8 per cent. Household final consumption increased 1.1 per cent, led by vehicle purchases.

However, Porter noted that exports were an area of key weakness in the GDP report.

“That is to me the one serious blemish in this report,” he said. “That is a serious, legitimate concern and it’s something the Bank of Canada is obviously concerned about.”

Growth in March was stronger than expected, with GDP growing 0.5 per cent, above estimates of 0.2 per cent. Goods-producing industries climbed 0.9 per cent, while service industries added 0.3 per cent.

Overall annualized growth figures for the second half of 2016 were also revised higher Wednesday. The figures for the third and fourth quarters were increased to 4.2 per cent and 2.7 per cent compared to earlier readings of 3.8 per cent and 2.6 per cent, respectively.

Craig Wong, The Canadian Press

by Canadian Press

Economy grows at 3.7% in Q1, fuelled by household spending, business investment

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