GDP: Resource Exports Cover for Domestic Weakness

Statistics Canada reported today that GDP grew by 0.6% in the first quarter. The volume of energy and mining exports expanded by more than 5%, offsetting lower exports of many manufactured goods as well as a weak domestic economy.

Consumer spending growth slowed to 0.2% in the first quarter of 2013, its lowest rate of growth since the first quarter of 2009. Business investment declined by 0.3%, with lower investment in housing as well as machinery and equipment offsetting higher investment in non-residential structures. Government spending grew by 0.5%, but public-sector capital investment shrank by 0.5%:

The decline in business investment is striking given buoyant corporate profits. The gross operating surplus of corporations increased by 1.1% in the first quarter, more than the wider economy and significantly more than employee compensation:

The corporate sector is reaping large profits from exporting commodities and investing in structures for resource extraction but not in the broader economy. A policy solution is for governments to collect higher resource royalties and corporate taxes, and invest the proceeds in needed infrastructure and services.