Canada’s economy slows as G7 peers gear up
2013-09-05 10:37:39
Growth in the Canadian economy weakened in the second quarter of this year following a pullback in exports and business investment, leaving households to do the heavy spending.
Gross domestic product grew by an annualized pace of 1.7% between April and June, Statistics Canada said Friday. That’s down from a 2.2% increase in the first quarter, which was revised by the federal agency from the previously estimated gain of 2.5%.
Economists had expected GDP growth of between 1.5% and 1.6% in the second quarter.
Still, the overall quarterly reading was above the 1% annualized increase expected by the Bank of Canada in its July outlook.
On a monthly basis, however, GDP declined by 0.5% in June — in line with private-sector forecasts — compared to a 0.2% gain in May. The monthly change was the largest drop since March 2009.
Canada’s economy is slowing as its Group of Seven peers show signs of improvement. Recent data showed that U.S. growth quickened to a 2.5% pace in the second quarter and the euro-area emerged from a record six quarters of recession, while U.K. growth accelerated to 0.7%.
Household spending was the biggest contributor to overall growth in the second quarter, rising by 0.9% — the largest gain since the fourth quarter of 2010. Most of those purchases were for vehicles, the fourth straight monthly increase in car sales and largest gain in more than a year.
Government spending, meanwhile, rose 0.6% in the second quarter —the fourth consecutive three-month gain — while business investment in machinery and equipment was down 0.5%. Exports were up by just 0.2% in the second quarter. Following a 1.3% gain in the previous three-month period. Imports were also weaker, advancing 0.4% after a 0.6% gain in the first quarter.
For June, the construction sector fell 1.9%, partly due to the construction strike in Quebec. Manufacturers saw production fell by 1.3% during the month, while mining and oil and gas extraction declined by 0.3%.
The Canadian economy grew by 1.7% in 2012, and the Bank of Canada is forecasting a gradual improvement to 1.8% this year and 2.7% in both 2014 and 2015. For the third quarter of this year, it is looking for 3.8% growth.
Moderate and unsteady growth has left the central bank on the sidelines since September 2010, when policymakers set their key interest rate at 1% to encourage spending by businesses and households coming out of the recession.
Economists do not anticipate any increase in that rate until at least the last part of 2014.
“The roughly as-expected report shouldn’t change projections much for the year as a whole, but the Bank of Canada will likely revise down its strong Q3 call given that there was less of a hit than they expected from the temporary disruptions in Quebec and Alberta,” said Avery Shenfeld, chief economist at CIBC World Markets.