Although the Canadian economy expanded over 3% in real terms in 2017, nonetheless the economy recently recorded three consecutive quarters of slow economic growth. Canada’s real GDP expanded at an annualized rate of 1.3% in the first quarter of 2018, after posting 1.7% and 1.6% growth rates in the previous two quarters.

Canada’s first quarter economic growth weakness was entirely concentrated in a 0.2% decline in output in January. In contrast, monthly GDP rose 0.4% in February and 0.3% in March. The improved monthly growth pattern in Q1suggests stronger momentum going into the second quarter.

As the figures in the following chart and table illustrate, foreign trade was a significant drag on the economy in the first quarter as imports expanded much faster than exports. Housing construction also subtracted from growth in the first quarter, while consumer spending also slipped in terms of its contribution to the economy.

There was a 7.2% annualized contraction in residential construction spending in Q1, which reflected the slowdown in housing following the introduction of much stricter mortgage finance regulations.

Consumer spending also only expanded at a sluggish 1.1% annual rate in Q1, its slowest quarterly pace in three years. On the encouraging side, however, business investment surged at an 11% annual rate in the first quarter, its best performance in over a year.

In closing, economists are more upbeat for economic growth in Q2. There was the improving pattern of growth in the first quarter, the recent surge in business investment spending, as well as the expectation that trade will not be a negative contributor to the economy in Q2.

Most economists believe that economic growth in the second quarter will exceed the 2.5% annual growth rate projected by Canada’s central bank.