Canada's economy is likely to grow more strongly this quarter than in the fourth quarter of last year, according to analysts.
While strong consumption and ongoing business investments support domestic demand growth, thanks to stronger export growth this quarter, net exports will make a bigger and positive contribution to GDP growth, Capital Economics has said.
Canada's economy will grow by 2.5 percent this quarter, analysts have said. The economy had expanded 1.8 percent in the fourth quarter of last year.
The main reason for the forecast pick-up in first quarter GDP growth is stronger exports, which reflects the improvement in the US economy.
Export volumes are on track to grow by at least 10 percent annualized, which would be twice the pace of the previous quarter. The breakdown of exports shows strong growth in energy and autos. This makes sense given that nearly all exported motor vehicles and energy products go to the U.S. and sales have been buoyant south of the border, points out Capital Economics.
Net exports will contribute 1.5 percentage points to first quarter GDP growth, double that of the previous quarter. Also final domestic demand is expected to grow by 1.5 percent annualized, compared to just over 2 percent in the previous quarter. The contribution of consumption to this quarter's growth in domestic demand is likely to remain strong.
Although last quarter's pick-up in consumption was in line with the pick-up in real disposable income growth, the growth in spending that was forecast by Capital Economics this quarter may come about by a further decline in savings and increased household debt. The government's new bank lending guidelines released this month will certainly make it easier for households to borrow against the equity in their homes and also increase the amount of money they can borrow.