Slow growth in Québec actually and in the coming months

The Institut de la statistique du Québec indicated January 21 that the Québec economy grew by only 1.1% in the first ten months of 2015 compared to the same period in 2014. It seems that growth is even less than that these days and it will stay slow in the coming months, based on the recent evolution of the Desjardins Leading Index published February 11.


Details at: https://www.desjardins.com/ressources/pdf/ipd0216e.pdf?resVer=1455201438000

Stay cautious

The Globe and Mail published February 6 (page F2) a summary of an interview between Stephen Roach, former chief economist at Morgan Stanley's, and Rudyard Griffiths. Here is the last part of the compte rendu

"What advice do you have?

These are difficult, treacherous times, and financial markets are displaying an extraordinary amount of volatility. I think a prudent strategy is to stay very cautious and not take an awful lot of risk in your individual portfolios until there’s a clearer sense of where the underlying economic fundamentals are heading, and what, if anything, central banks are going to do."

Slow growth of the world and american economies in January, according to PMI surveys

Purchasing Managers surveys published by Markit Economics show that the world and the United States economies grew in January, but at a weak pace. The surveys results are published at:

https://www.markiteconomics.com/public

Here are graphs that show some results of the surveys:

World economy

 

USA economy

Manufacturing activity in Canada

Canadian economy: are the growth projections for 2016 realistics?

The Bank of Canada writes in its January edition of the "Monetary Policy Report"  "...that, to date, the adjustments mean that near-term potential outpout growth is likely in the lower part of the range of estimates provided in the April 2015 Report." (page 29). The lower limit of these estimates for 2016 was at 1.4% last April. The January Report also signals that "...the degree of slack in the economy has been increasing" (page 18).

 

Now, the question is: in these circumstances, can the Bank projection of a 1.4% real GDP growth this year stand? Isn't it too optimistic?   


Many leading indicators of the canadian economy evolution let believe that there could be a downturn in the coming months (see the graphs below). Moreover, the federal government economic stimulus plan is still to come, and an important part of it, the infrastructure investment program, when announced, will take many months before having an impact , because of normal delays for the approval and the beginning of the construction of specific projects.

 

Be it the real GDP growth forecast for 2016 of the Bank (1.4%), of the IMF (1.7%) or The Economist review pool of forecasters (range of 1.2% to 2.3%), don't be surprised if they are revised downward in the coming months.  Even an economic activity contraction is quite possible, at least in the first two quarters of this year.

 

Some leading indicators of the canadian economy evolution

 

Building permits (source: Statistics Canada)

 

 

 Housing starts (source: CHMC)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity prices (source: Bank of Canada)

 

Unfilled manufacturing orders (source: Statistics Canada)

 

Stock Market: S&P/TSX (source: The Globe and Mail)
      

Clouds are gathering over the US economy, according to leading indicators

The prospects for modest to moderate growth in Canada in 2016 are partly based on the performance of the United States economy. But growth there might not be as strong as expected when we look at its leading indicators.

OECD index of leading indicators (January 11):

Semestrial evolution of the Conference Board Economic Leading Index (January 22)

Weekly leading indicators index from the Economic Cycle Research Institute (January 22)

World GDP growth revised downward by the IMF

The International Monetary Fund (IMF) published January 19 its World Economic Outlook Update. The world output was revised downward for 2016 (3.4%), and it should be lower than the trend recorded in the last years (around 4.0%). Canada's GDP growth this year is estimated at 1.7% by the IMF economists; this appears quite optimistic, if not irrealist. The IMF WEO Update is available at:

http://www.imf.org/external/pubs/ft/weo/2016/update/01/pdf/0116.pdf

Here is an overview of the Update:

Modest growth of the world economy, according to PMI data

World economic expansion is quite modest these days based on the J.P. Morgan Global Manufacturing & Services PMI  recent evolution. The most recent data on PMIs were published January 6 by Markit Economics. Moreover, the increase in new orders was weak, which means the recent trend in economic activity will continue at least in the short term.

Details at:
https://www.markiteconomics.com/Survey//PressRelease.mvc/2ee3e5a6d71a44be98fe13307fc49cd5