GDP: Austerity Bites

Canada’s economy grew by half a percent in the first quarter of 2012, staying on pace for unimpressive annual growth of two percent.

The good news is that business investment was strong, at least on a seasonally-adjusted basis. (As usually happens in the first quarter, the actual dollar value of business investment decreased.)

Unfortunately, the other major components of GDP weakened. Government spending on goods and services fell by 0.4%, its largest quarterly decline since 1997. Fiscal austerity is starting to take a bite out of Canadian economic growth.

Consumer spending grew by an anaemic 0.2%, its slowest quarterly growth since 2009. Weak consumer spending reflects weak labour income, partly a consequence of austerity and other policies to suppress wages.

Exports grew by 0.6%, down from 1.7% in the preceding quarter and 3.7% in the quarter before that. In contrast to the 1990s, Canada cannot rely on external demand to offset domestic austerity.

Today’s GDP report should prompt governments to reevaluate the pace of budget cuts and the Bank of Canada to keep interest rates low.

This spreadsheet displays the above GDP components going back to 1997.

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

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