It takes a special kind of cynic to look at the latest GDP numbers and find them wanting.
Canada posted impressive gains in the first quarter, Statistics Canada revealed on Wednesday, with the economy expanding at an annual pace of 3.7 per cent — the best in the developed world right now.
Not too long ago, a report like that would have had us doing cartwheels and popping bottles of Veuve.
And yet disappointment has seeped into most reactions.
In fact, disappointment has become something of a reflex in the Canadian economy as we've waited nine long years to fully emerge from the financial crisis of 2008.
Consumers carrying the economy
There are several commonly cited reasons for the glum outlook after such a positive report.
First, the GDP numbers fell short of expectations. A consensus of economists predicted a whopping 4.2 per cent growth rate for the first quarter. Some even called 4.7 per cent growth.
Secondly, there are legitimate questions about sustainability and the long-term ability of the Canadian consumer to shoulder the weight of economic growth.
"Overall, the latest quarterly expenditure data show that economic growth is still uneven, heavily supported by household-related spending," says David Madani, senior Canada economist at market research firm Capital Economics.
Karl Schamotta, director at Cambridge Global Payments, says the first quarter numbers may show Canada outperforming many other countries but things look less cheerful beneath the headlines.
"We remain convinced that risks to the Canadian economy are tilting toward the downside," he says, referring to the same lack of balance in the economy.
Add in concerns over trade with the U.S., wage growth and a bad run for both Canadian stocks and the loonie, and you have the case for not popping the champagne.
Frances Donald, senior economist with Manulife Asset Management, says Canadian stocks have fared poorly so far this year, as has the Canadian dollar, which has been the worst performing G10 currency against the U.S. dollar.
"The market focus remains squarely on energy prices and the large and powerful downside risks to growth that include domestic housing markets and international trade risks emanating from NAFTA renegotiations," Donald said in a note to clients.
And all that is fair.
Now, the good news
But despite those concerns, there is an awful lot of good economic news to focus on.
Consider the following:
- We've added jobs in droves over the past year, and the unemployment rate has dropped to 6.5 per cent, its lowest point since the fall of 2008.
- Those red-hot housing markets in Toronto and Vancouver have cooled after governments introduced a series of measures aimed at slowing almost absurd levels of activity.
- Manufacturing is picking up and finally performing as many expected it would in those early days of the collapse in the price of oil and drop in the value of the loonie.
- Oil has stabilized at around $50 a barrel, which has prompted expectations that Alberta and Saskatchewan are now primed to lead economic growth in Canada this year.
- Business investment, which has lagged for years, was up 12.2 per cent in the first quarter on a seasonally adjusted basis.
Doug Porter, chief economist at BMO Financial Group, called this week's GDP report an "impressive power display." Sure, he says, the headline figure missed expectations, but monthly GDP for March alone surpassed expectations (0.5 per cent over the consensus of 0.3 per cent). And Statistics Canada revised its readings for the previous two quarters, bumping them up slightly.
An impressive start to the year
Porter says all this kicks off the second quarter on good footing.
"This still leaves the Canadian economy expanding at an underlying pace well above any other major economy at this point — quickly reversing the underperformance of the Canadian economy after the oil shock."
The bottom line is the Canadian economy undoubtedly still poses something of a riddle, especially for policy-makers like those at the Bank of Canada. Interest rates remain at emergency levels. And just a week ago, the central bank said it was expecting "very strong growth in the first quarter will be followed by some moderation in the second quarter."
For a long while there, economists and policy-makers swore up and down that a recovery was just a quarter or two away. Remember the phrase "front-loaded shock"? Way back in April of 2015, Bank of Canada governor Stephen Poloz said he expected the shock to the system caused by the collapse in oil prices wouldn't last.
"It's a very front-loaded or one-time kind of shock," Poloz said at the time. "Starting in the second quarter, we think the positives will be more important than the negatives, and certainly in the second half of this year, this shock should be fully behind us."
Well, here we are two years later and (some of) the data show we may finally be emerging from that shock. But forecasters are gun-shy and the pessimism about an economy stuck in the mud this long may be as much muscle memory as anything else.