Part 2 – Canada and Ontario

GDP Performance

Gross Domestic Product (GDP) describes the total value of goods and service produced within the boundaries of an economy, and is widely accepted as a barometer of the overall growth and development of a country. In 2016, Canadian GDP grew by 1.4 per cent. This was higher than the 0.9 per cent growth registered in 2015. The Ontario economy remained a prime contributor to Canadian GDP growth in 2016(see figure 2).

The Canadian Economy

The 1.4 per cent growth in Canadian GDP in 2016 was driven by growth in total consumption expenditure (2.3 per cent) and exports of goods and services (1.5 per cent). The growth in total consumption expenditure was stronger than the 1.9 per cent increase observed in 2015.

Both household (private) and government consumption expenditure registered higher growth to contribute to stronger growth in total consumption expenditure during the year. Higher household consumption expenditure was made possible by a 3.8 per cent rise in household disposable income in an environment where interest rates remain relatively low. Government consumption expenditure increased by 2.0 per cent in 2016, up from 1.5 per cent in 2015. This was in line with the stated objective of the Canadian government to increase expenditure to support the achievement of higher economic growth.

Household consumption expenditure remained the cornerstone of
Canadian GDP growth in 2016

Total exports of goods and services by the Canadian economy increased by 1.5 per cent in 2016. Growth in 2016 was attained despite fluctuations during the year, and declines due to interruptions caused by the Fort McMurray wildfires. Exports of services grew by 4.0 per cent while exports of goods advanced by 0.5 per cent. While total exports advanced, the 1.1 per cent growth observed represented a slowing relative to the 3.4 percent increase observed in 2015.

There was no change in total imports in 2016, after recording an increase of 1.0 per cent in 2015. The flat overall performance was the result of lower imports of goods (-0.1 per cent) and a 0.2 per cent in the imports of services.

For the second consecutive year, total investment (also called gross fixed capital formation) in the Canadian economy declined in 2016, and constrained the overall growth attained. Total investment declined by 3.0 per cent in 2016, following a 4.3 per cent fall in 2015. The weakness concentrated in the non-residential sub-sectors where a double digit decline (-10.6 per cent) was posted for the second consecutive year, mainly due to weakness in the energy sector. The decline in 2016 reflected two factors. First, the fall in the price of crude oil on the international market continued. The average price for crude oil fell 15.6 per cent in 2016 to US$42.8, following a 47.3 per cent decline in the preceding year. As average price declined, investment in the energy sector became less attractive, resulting in lower investment expenditure in the sector. A second source of decline in investment in the energy sector was the Fort McMurray wild fires that occurred in the second quarter. Activities in the energy sector in Fort McMurray were interrupted and investment curtailed. This further weakened investment expenditure and contributed to the further weakening of total investment in the Canadian economy in 2016

Ontario Economy

The Ontario economy continued to grow in 2016 and provided support for the growth attained in the Canadian economy. During the first three quarters of the year the quarterly changes in Ontario’s GDP (from quarter 1 to quarter 3) were 0.9 per cent, 0.2 per cent, and 0.7 per cent, or 3.5 per cent, 0.7 per cent and 2.6 per cent annualized. Throughout the period, household spending registered the strongest growth to underpin the overall growth in GDP. This was made possible by the quarterly increases in household disposable income throughout the period, which followed sustained quarterly increases in the preceding year.

GDP growth continued in Ontario and was key to Canadian GDP growth in 2016

Government expenditure also increased in the first (0.7 per cent) and second (1.2 per cent) quarters to boost growth during the first half of the year. However, government expenditure declined by 0.4 per cent in the third quarter. Exports of goods and services provided some support to Ontario’s GDP growth in the first (2.0 per cent) and third (0.8 per cent) quarters of the year but registered a relatively large decline of 2.7 per cent in April – June 2016.

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