Canada Economy Shrinks 3.4%


Canada’s economy shrank faster than expected in the April-to-June period as the country’s first recession since 1991 is proving deeper than thought, even as growth in June indicates the contraction is nearing an end.

Gross domestic product shrank at a 3.4 percent annualized rate in the second quarter, compared with economists’ prediction of a 3 percent annualized contraction, Statistics Canada said. The first-quarter contraction, initially reported at 5.4 percent, was revised to a 6.1 percent annualized rate -- the biggest drop in records dating to 1961.

The second-quarter decline, which was in line with a 3.5 percent estimate by the Bank of Canada, may mark the end of the recession. The central bank and economists predict that growth will resume in the third quarter and strengthen from there. The economy increased 0.1 percent in June, the first gain in 11 months, the agency said.

Final domestic demand rose at a 0.4 percent annual pace in the second quarter, led by spending by individuals and governments, rebounding from a 6 percent drop in the first quarter and a 4.9 percent decline in the fourth quarter on 2008. Consumer spending rose at a 1.8 percent annual pace in the second quarter, following declines of 1.2 percent and 3.1 percent in the two previous quarters. Housing investment rose for the first time in six quarters.

Government spending advanced at an annual pace of 3.2 percent in the second quarter and their fixed capital formation, which includes investments in infrastructure such as roads and bridges, gained at a 16 percent pace, Statistics Canada also said.

Canada’s businesses lowered their spending in the second quarter as U.S. demand remained weak, curbing export receipts. Companies cut back investment at an annual rate of 9.7 percent, less than the 28 percent and 19 percent recorded in the previous two quarters. Companies also slowed their pace of inventories reduction, lowering stockpiles by C$1.63 billion ($1.48 billion), compared with C$19 billion in the first quarter.

Exports fell an annualized 19 percent in the second quarter, compared with 30 percent in the first quarter, while imports fell an annualized 8.5 percent, from 39 percent in the first quarter.

Gross domestic product for the U.S., Canada’s biggest trading partner, shrank at a 1 percent annual rate from April to June, the Commerce Department said Aug. 27 in Washington.

All goods-producing industries cut output in the second quarter, led by manufacturers and energy producers, Statistics Canada said. Service-producing industries increased output for the first time in three quarters.


TradingEconomics.com, Bloomberg
8/31/2009 9:14:20 AM