Biannual Update on the Canadian Economy: Third and Fourth Quarters of 2018

(Disponible en français : Bilan semestriel de l’économie canadienne : les troisième et quatrième trimestres 2018)

This HillNote presents selected indicators on the Canadian economy and highlights key trends covering the third and fourth quarters of 2018. Over that period, the Canadian gross domestic product (GDP) continued to grow, but at a lower rate than during the first two quarters of the year, primarily due to a decrease in business investment. The unemployment rate trended downwards, and employment grew at a faster rate than during the first half of 2018.

Real Gross Domestic Product Growth

Figure 1 shows that the annualized growth in real GDP slowed to 2.0% in the third quarter and 0.4% in the fourth quarter. The fourth quarter marks the lowest annualized growth rate since the second quarter of 2016. According to Statistics Canada, real GDP grew 1.8% in 2018, compared with 3.0% in 2017.

(Note that in all but Figure 5, the bars for the third and fourth quarters of 2018 are in yellow, and blue bars represent other time periods.)

Figure 1 – Annualized Quarter-Over-Quarter Real Gross Domestic Product Growth, Canada, First Quarter 2014–Fourth Quarter 2018 (%)Figure 1 shows the annualized growth in real gross domestic product on a quarterly basis from the first quarter of 2014 until the fourth quarter of 2018. Over this period, the highest quarterly growth rate occurred in the third quarter of 2016 at 4.4% while the lowest quarterly growth rate occurred in the first quarter of 2015 at 2.1%. Growth in the real gross domestic product slowed to 2.0% in the third quarter of 2018 and 0.4% in the fourth quarter of 2018. Note: The real gross domestic product (GDP) (contributions to percentage change, annualized) were calculated by Statistics Canada and are based on average quarterly data.
Source: Figure prepared by the authors using data that is adjusted for inflation and seasonal fluctuations obtained from Statistics Canada, Table 36-10-0104-01, “Gross domestic product, expenditure-based, quarterly, Canada (dollars x 1,000,000),” accessed 3 April 2019.

Real Gross Domestic Product Components

As shown in Figure 2, one of the main factors that led to the slowing of real GDP growth in the third and fourth quarters is a decrease in business investment, which removed 1.6 and 1.8 percentage points from real GDP growth in these two quarters, respectively. During that period, decreases in the value of imports added 3.1 and 0.4 percentage points to real GDP growth. While household consumption growth slowed, it added 0.8 and 0.4 percentage points to real GDP growth in these two quarters.

Figure 2 – Contributions to Real Gross Domestic Product Growth Percent Changes by Component, Canada, First Quarter 2018–Fourth Quarter 2018 (%)

Note: Household consumption includes consumption by non-profit institutions and business fixed investment includes investment by such institutions.
Source: Figure prepared by the authors using data that is adjusted for inflation and seasonal fluctuations obtained from Statistics Canada, Table 36-10-0104-01, “Gross domestic product, expenditure-based, quarterly, Canada (dollars x 1,000,000),” accessed 3 April 2019.

Inflation

Figure 3 shows the evolution of Consumer Price Index (CPI) inflation in terms of average quarterly data. Between the first quarter of 2014 and the fourth quarter of 2018, CPI inflation has fluctuated within the Bank of Canada’s inflation target range of 1% to 3%. The CPI inflation rate in the fourth quarter of 2018 was 2.0%, down from 2.7% in the third quarter of 2018.

Figure 3 Year-Over-Year Change in Consumer Price Index Inflation and the Bank of Canada’s Inflation Target Range, First Quarter 2014–Fourth Quarter 2018 (%)

Figure 3 shows the evolution of Consumer Price Index (CPI) inflation in terms of average quarterly data from the third quarter of 2014 until the fourth quarter of 2018. The CPI inflation rate in the fourth quarter of 2018 was 2.0%, down from 2.7% in the third quarter of 2018. Over this period, the highest rate of inflation occurred in the third quarter of 2018 at 2.7% while the lowest rate of inflation occurred in the first and second quarters of 2015 at 1.0%.

Note: The Consumer Price Index inflation rate calculations are based on average quarterly data.
Source: Figure prepared by the authors using data obtained from Bank of Canada, Summary of Key Monetary Policy Variables, accessed 3 April 2019.

Employment Growth

Total employment growth was 1.3% and 2.1% in the third and fourth quarters. In the third quarter, almost all new jobs were part-time, while in the fourth quarter, about 83% of new jobs were full-time. In the fourth quarter, approximately 15.2 million people had full-time jobs, and 3.5 million had part-time jobs.

Figure 4 – Annualized Quarter-Over-Quarter Employment Growth, Full-Time, and Part-Time, Canada, First Quarter 2018–Fourth Quarter 2018 (%)

Figure 4 shows that, in 2018, annualized quarter-over-quarter growth of total employment was 0.3% in the first quarter, 1.0% in the second quarter, 1.3% in the third quarter and 2.1% in the fourth quarter; that annualized quarter-over-quarter growth of full-time employment was 1.9% in the first quarter, 1.1% in the second quarter, 0.0% in the third quarter and 2.2% in the fourth quarter; and that annualized quarter-over-quarter growth of part-time employment was -6.9% in the first quarter, 0.6% in the second quarter, 7.1% in the third quarter and 2.0% in the fourth quarter.

Source: Figure prepared by the authors using seasonally adjusted data obtained from Statistics Canada, Table 14-10-0287-01, “Labour force characteristics, monthly, seasonally adjusted and trend-cycle, last 5 months,” accessed 3 April 2019.

Unemployment Rates by Age and Sex

At the end of the fourth quarter 2018, the unemployment rate stood at 5.6%. This represented a decrease of 0.3 percentage points as compared to the rate at the end of the fourth quarter 2017. When the data is disaggregated by age and sex, the rates for those in the 25 to 54 and the 55 and above age groups were slightly lower than the entire population’s average.

However, those in the 15 to 24 age range experienced significantly higher levels of unemployment relative to the rest of the population. Moreover, the unemployment rate for men aged 15 to 24 was 12.7% in the fourth quarter, compared with 9.1% for women aged 15 to 24.

Figure 5 – Unemployment Rates in Canada by Age Group and Sex, Canada, Third Quarter 2018–Fourth Quarter 2018 (%)

Figure 5 shows the unemployment rates in Canada by age group and sex for the third and fourth quarters of 2018. For the group aged 15 to 24, the unemployment rate for both sexes was 11.0% for the third quarter and fourth quarter respectively. For women aged 15 to 24, the unemployment rate for women was 9.7% and 9.1% for the third quarter and fourth quarter respectively. For men aged 15 to 24, the unemployment rate for men was 12.2% and 12.7% for the third quarter and fourth quarter respectively. For the group aged 25 to 54, the unemployment rate for both sexes was 5.1% for the third quarter and 4.7% for the fourth quarter respectively. For women aged 25 to 54, the unemployment rate for women was 5.0 % and 4.7% for the third quarter and fourth quarter respectively. For men aged 25 to 54, the unemployment rate for men was 5.1% and 4.8% for the third quarter and fourth quarter respectively. For the group aged 55 years and older, the unemployment rate for both sexes was 5.2% for the third quarter and 5.1% for the fourth quarter respectively. For women aged 55 years and older, the unemployment rate for women was 4.6% and 4.8% for the third quarter and fourth quarter respectively. For men aged 55 years and older, the unemployment rate for men was 5.6% and 5.4% for the third quarter and fourth quarter respectively.

Source: Figure prepared by the authors using seasonally adjusted data obtained from Statistics Canada, Table 14-10-0287-01, “Labour force characteristics, monthly, seasonally adjusted and trend-cycle, last 5 months,” accessed 3 April 2019.

Exchange Rates

Over the June to December 2018 period, the value of the Chinese renminbi and U.K. pound sterling decreased by 3.9% and 2.4% relative to the Canadian dollar, respectively; the value of the U.S. dollar increased by 2.3% over the same period. The value of the euro and Japanese yen remained relatively stable.

Figure 6 – Variation of Selected Exchange Rates, June to December 2018 (%)

Figure 6 shows, over the July to December 2018 period, the variation of the following exchange rates: an increase of 2.3% for the U.S. Dollar, an increase of 0.3% for the Japanese Yen, a decrease of 0.3% for the euro, a decrease of 2.4% for the U.K. Pound Sterling and a decrease of 3.9% for the Chinese Renminbi.

Note: The exchange rate represents the amount of Canadian dollars needed to purchase one unit of foreign currency. For example, an increase of 5% in the U.S. exchange rate would represent an increase of 5% in the value of the U.S. dollar relative to the Canadian dollar.
Source: Figure prepared by the authors using data obtained from Statistics Canada, Table 33-10-0163-01, “Monthly average foreign exchange rates in Canadian dollars, Bank of Canada,” accessed 3 April 2019.

Economic Outlook for 2019 and 2020

The Organisation for Economic Co-operation and Development (OECD) indicated in its March 2019 Interim Economic Outlook that real GDP growth in Canada is projected to ease to around 1.5% in 2019 and will stabilize at 2.0% in 2020. It explained that lower oil prices and production cutbacks have reduced energy sector output, and higher mortgage rates have added to debt-service burdens for households. OECD projections show that the growth in the Canadian economy will be lower than the G20 growth rate which is projected to be 3.5% in 2019 and 3.7% in 2020.

Authors: Andrew Barton and Michaël Lambert-Racine, Library of Parliament

 

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