Poorest Quarterly Performance since 1991
According to Statistics Canada, "real" inflation-adjusted Gross Domestic Product (GDP) in Canada dropped 3.4% on an annualized basis in the latest measured period, the fourth quarter of 2008. This was the poorest performance for Canadian GDP since the first quarter of 1991, when the change was -5.9%.

While there were a number of contributing factors to the GDP decline, the fact that personal consumer spending fell by 3.3% annualized explains much of what happened. Cautious consumers cut their expenditures for the first time since the final quarter of 1995. Nevertheless, there are many interesting sides to the economic story.

Some of the Highlights and Dim Lights
Despite the recent disappearance of Canada's merchandise trade surplus, the foreign trade sector actually helped the overall economy in the latest quarter. That is because the "real" decline in exports (-19.7%) was less than the "real" decline in imports (-24.0%). The volume of imports dropped for two reasons. First, the weaker economy cut into buyers' demands. Second, the higher price of imports was an inhibiting factor.

Import prices jumped due to the largest quarterly decline (-14%) in the value of the loonie versus the greenback since the Canadian dollar was allowed to float in 1970. Final domestic demand in Canada's economy, which omits foreign trade, was an annualized -4.9%, quite a depressing number.

Corporate profits before taxes dropped by 20% in the latest quarter, after almost nothing but increases during the preceding seven years. Due to wage and salary gains, personal disposable incomes continued to increase in the quarter (-0.4%), although at a low rate. Nevertheless, this contributed to the savings rate rising to 4.7%, its highest level since first-quarter 2002.

Industrial Production almost all Negative — Agriculture the Exception

With respect to industrial output, goods producing industries (-2.4% quarter over quarter) had a greater rate of decline than services (-0.4%). Manufacturing was particularly hard hit (-4.3%). The annualized rate of the manufacturing sector decline was approximately -13.0%. Durables manufacturing, which is more than majority-influenced by vehicles production, was -5.3% quarter over quarter, or almost -25% annualized.

Only one sector had an increase in production and that was agriculture. Increasingly, analysts are paying attention to agriculture as the industrial sector of the moment. The worldwide demand/supply imbalance for food has eased somewhat from a year ago, but it remains a potential hot topic. Among commodity prices, "agricultural products" is one of the few areas where prices have retained stability as opposed to sharp drop-offs.

CanaData is forecasting real GDP to fall 1.5% in 2009 after a +0.5% change in 2008. In 2010, modest recover will carry the GDP figure to +2.0% and then improvement will take firmer hold in 2011, at +3.5%.