Canada economy slowed at end of 2018 raising recession fears

Canada's economy slowed in the last three months of 2018 to only 0.4 percent, according to government data released Friday, raising concern it is on the brink of a recession in an election year.

The gross domestic product (GDP) figure was lower than the 1.0 percent expected by analysts, following 2.0 percent growth in the previous quarter.

This slowing pace closed out the year with a total annualized economic growth rate of 1.8 percent, slightly more than half the previous year's 3.0 percent and the United States's 2.9 percent growth in 2018.

"The 'R' word (for recession) will be on minds as Canada's economy barely skirted the start of a recession in Q4," CIBC Capital Markets chief economist Avery Shenfeld said in a research note.

He pointed to a "weak handoff" from December to the new year, that he said will likely prompt the Bank of Canada to back off plans to raise interest rates in the short term.

"If not for a huge employment gain in January (+67,000 jobs) we'd be worried about an outright recession, but at this point, its best described as a stalled engine," Shenfeld concluded.

Either scenario is bad news for Prime Minister Justin Trudeau's Liberals as they head into elections in October looking to hold onto their parliamentary majority.

The Trudeau Liberals' popularity slipped amid allegations by his former attorney general of political interference in the criminal prosecution of engineering giant SNC-Lavalin.

The Montreal-based company was charged in 2015 with corruption for allegedly bribing officials in Libya between 2001 and 2011 to secure government contracts during former strongman Moamer Kadhafi's reign.

For the first time, the ruling Liberal Party has found itself trailing the opposition Conservatives led by Andrew Scheer in the most recent public opinion polls.

Statistics Canada said the nation's slowing economic growth mainly reflected a drop in investment spending and lower exports.

Household spending slowed for a second consecutive quarter, with spending on life insurance and financial services up and on motor vehicles down. Purchases of cannabis -- after recreational use was legalized in October -- totalled Can$5.9 billion (US$4.5 billion) or 0.5 percent of household spending.

Business investment on non-residential structures, and machinery and equipment fell sharply, but that plunge was moderated by an uptick in investment in intellectual property products.