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By HaleStewart November 29, 2013 9:07 am
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Canadian Growth Continues Thanks to Consumer Spending

For the duration of this expansion, the US Federal Reserve has described the US expansion as "moderate."  The same terms could be used to describe the Canadian expansion, which, were it not for the contribution of consumers, would be printing near 0% growth rates.

Let's start with a look at Candian inflation.  According to mulitple measures, the CPI rate is very low by historical standards.  This gives the central bank plenty of maneuvering room should they want to keep rates low or engage in other, more aggressive policy measures.

At the same time, consumers (shown as green in the above charts) are clearly the driving force of economic growth.  Exports (in blue) and business investment (in red) are clearly lagging behind other GDP components.

The above graph shows both exports and business fixed investment declinging on a year over year basis.  The primary reason for the drop in exports is the weak international growth environment.  This is leading to uncertainty on the part of businesses who are in turn holding back on investment.

The sum total of all the above is a moderate rate of annual growth which has been printing below 2% for the last five quarters.

Canada is a heavily export dependent economy.  As a result, the slower global growth environment of the last few years has put a crimp in Canada's macro level growth figures.  Only a global return to stronger rates of growth will pull Canada out of this moderate trend.

The graphs contained in this article are from the Canadian Central Banks October 2013 Monetary Report.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

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