Canada's Economy Unexpectedly Shrank

Canada's economy unexpectedly shrank in February, led by manufacturing and wholesaling, another sign that a U.S. slowdown and global credit shortages will curb production this year., Bloomberg 4/30/2008 7:47:44 AM

Gross domestic product shrank 0.2 percent, the second decline in three months, Statistics Canada said today in Ottawa.

The economy will expand at the slowest pace since the last recession in 1992 this year, the Bank of Canada said April 22, as tight credit conditions and an export slump pull back growth. Record demand for metals and energy has propped up the world's eighth-biggest economy during the U.S. slowdown by boosting employment and consumer spending.

Even those areas of strength faltered in February, with retailing down 0.6 percent, and energy falling 0.9 percent.

Industries most tied to slumping U.S. demand for automobiles and lumber and the high Canadian dollar fared even worse. Manufacturing fell 0.7 percent and wholesaling dropped 1.4 percent.

The Canadian dollar is up 37 percent against its U.S. counterpart in the past four years, touching a record 90.58 Canadian cents per U.S. dollar on Nov. 7.

Bank of Canada Governor Mark Carney, who testifies at a parliamentary committee this afternoon, said last week the economy will grow 1.4 percent this year after 2.7 percent in 2007. Carney cut the central bank's key interest rate half a point last week and said further action would likely be needed.

Separately, Statistics Canada said today that manufacturing product prices and raw-material costs surged in March on higher energy and metal prices.

The country's industrial product price index rose 1.7 percent, the fastest 1-month gain since July 2006. Raw-material costs for manufacturers jumped 6.6 percent, the most since September 1990.