GDP Stalls

Following a strong increase in March, Gross Domestic Product (GDP) decreased slightly in April. Output edged down in both the goods-producing sector and the service sector.

Annualized output stood at $1,229 billion in April, compared to a pre-crisis peak of $1,241 billion in July 2008 and a trough of $1,186 billion in May 2009. We are $12 billion below the peak, but $43 billion above the trough.

In 2009, increased government purchases and investment made a substantial contribution to output. During the first quarter of 2010, the recovery continued despite very little increase in government purchases or investment. This recent growth was driven by consumer spending and the restocking of business inventories.

Inventory restocking obviously cannot continue forever. April’s large drop in retail trade also raises questions about consumer spending. Government purchases and investment could actually decrease going forward.

With the help of stimulus spending, Canadian output has recovered most of the ground lost during the crisis. However, with governments prematurely entering austerity mode, the prospects for future economic growth are somewhat uncertain.