Canadian economy taking off

Yesterday, 1st quarter GDP numbers for Canada were released and they showed that Canada’s economy started 2010 very strongly with an annualized growth of 6.1%. To put this figure in context, it is the largest increase in the GDP since the last part of 1999, over a decade ago.

This is good news for Canada and likely a sign of the bettering times for North America in general. Some experts say that this increase was partially due to pent up demand and inventories, however, the inventory figures also increased for the first time after four quarters with no increase. Another reason analysts give for this jump in the GDP was because of government incentives, as well as, the HST (new consumer tax for some parts of Canada) which encouraged people to make purchases in the 1st quarter of the year. Surely all these reasons did play some part in the positive figures, but that does not take away from the economy gaining real traction.

The only negative, or potential negative to all this is what will happen to the economy once the new HST tax is fully implemented. This new tax will be in full force starting July 1 of this year, exactly one month from today and a lot of people are very concerned about what that might do to the all important housing sector and consumer spending in general. The housing sector in Canada has been deemed to be over priced by major institutions and many experts say that the inflated prices in combination with the new HST tax and the expiring government incentives will see Canada’s housing market drop, perhaps quite significantly. If that does occur then, it will likely take some of the steam off the growing economy.

 For now however, Canada’s economy, which was already a relative bright spot compared to other G7 economies now looks even stronger. For Americans, this news is good too because the numbers showed that both exports increased and imports went up as well. In fact, it was consumer spending and imports that contributed more than exports to this increase in GDP, which means that American businesses are likely selling more of their products and services to Canadians. It also means that the U.S. economy is continuing to grow (although at a slower pace) because much of Canada’s exports are destined for the American market.

For now we can enjoy the good news, but on the horizon, specifically starting in the second half of this year the news may be a bit grimmer. Hopefully by then we will have gathered enough steam to weather the storm and come out relatively unscathed.