Canadian economic growth weakens for a second month

By Special to MoneySense on May 31, 2016
Estimated reading time: 3 minutes

Oil, gas and mining dropped 2.8% this month

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OTTAWA – The Canadian economy contracted in March for a second consecutive month as real gross domestic product grew at a slower-than-expected pace for the first three months of the year. The weak end to the first quarter, due in large part to the resource sector, comes as economists raise concerns about growth in the second three months of this year. Statistics Canada said Tuesday that real GDP grew at an annual pace of 2.4 per cent in the first quarter. But despite that growth, which was buoyed by a strong January, the economy contracted by 0.2 per cent in March, following a 0.1 per cent decline in February. The growth for the quarter was weaker than the 2.9 per cent pace economists had expected, according to Thomson Reuters. They were also expecting a contraction of only 0.1 per cent for March. How to prepare for an economic slowdown » “A fine quarter ended with a thud,” said Avery Shenfeld, chief economist of CIBC Capital Markets, in a note to clients. “Canadian GDP got all its momentum from its first month, a signpost of a slowdown ahead.” Overall, growth in the first quarter was helped by exports, which were up 1.7 per cent following a drop of 0.4 per cent in the fourth quarter of 2015. Exports of goods were up 1.9 per cent, boosted by the auto sector. Investment in housing was also up with business investment in residential structures up 2.7 per cent. The contraction of the economy in March was mainly due to a drop in the mining, quarrying and oil and gas extraction sector, which dropped 2.8 per cent following a 0.6 per cent fall in February. Retail trade also pulled back by 1.3 per cent in March due to a widespread decline including a 3.9 per cent drop at motor vehicles and parts dealers. The soft results came as Statistics Canada lowered its estimate for January growth to 0.5 per cent compared with an earlier estimate of 0.6 per cent and cut its estimates for growth in the last three quarters of 2015. The second quarter of last year is now estimated to have seen contraction at an annual pace of 0.5 per cent, while growth in the third and fourth quarters of 2015 was revised to show growth at annualized rates of 2.2 per cent and 0.5 per cent respectively. Have Canadian stocks really become less risky? » That compared with earlier figures that showed contraction at an annual pace of 0.4 per cent in the second quarter of 2015 and growth of 2.4 per cent and 0.8 per cent in the third and fourth quarters of 2015. Based on the revisions, Statistics Canada now estimates that growth for last year came in at 1.1 per cent compared with its earlier reading of 1.2 per cent, its slowest pace since the 2009 recession. In its April monetary policy report, the Bank of Canada had expected growth in the first quarter to come in at an annual rate of 2.8 per cent. But last week, when it announced it would keep its key policy rate on hold, the central bank said the fires that devastated parts of Fort McMurray, Alta., and forced the shutdown of several oilsands operations would shave 1.25 percentage points off real GDP growth in the second quarter. Why do rich people invest in real estate? » The prediction implies the economy will contract in the second three months of the year based on the central bank’s prediction of growth at a pace of 1.0 per cent. The Bank of Canada is expected to update its full outlook for the economy and inflation in its next monetary policy report on July 13, when it also makes its next rate announcement.