Canada’s GDP Shrinks
Ottawa, Ontario — Canada’s economy shrank between January and March, the first contraction in four years and the largest since the 2009 recession as collapsing energy prices prompted a plunge in business investment.
Gross domestic product fell at a 0.6 percent annualized pace in the first quarter, Statistics Canada said Friday in Ottawa. The drop exceeded all 22 economist forecasts in a Bloomberg News survey, in which the median call was for an expansion of 0.3 percent. The agency revised its fourth-quarter growth estimate to 2.2 percent, from 2.4 percent previously.
Bank of Canada Governor Stephen Poloz predicted last week growth in the first quarter would be flat. He also held the bank’s benchmark rate at 0.75 percent, where it’s been since a quarter-point cut in January — a move he called “insurance” against the oil-price shock. Policy makers expect lower energy prices to spark a rebound, led by non-energy exports.
The report was “clearly disappointing,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. “The message from the Governor is that he is prepared to wait for a better second half, which has an implicit message that if we don’t see a pickup in growth, he would be cutting again.”
The Canadian economy is likely to rebound with “solid” growth in the second quarter as weakness in exports and consumer spending eases, Shenfeld said. The Bank of Canada in April forecast output would be little changed between January and March before quickening to a 1.8 percent annualized pace in the second quarter.
Business gross fixed capital formation — or business investment — fell at a 9.7 percent annualized pace in the first quarter, the most since the first three months of 2009. Support activities for mining and oil and gas extraction fell by 30 percent.
Consumer spending growth slowed to an annualized 0.4 percent rate, the slowest since the start of 2009, from 2.1 percent in the fourth quarter. Transportation fell for the first time in 10 quarters, as vehicle purchases declined.
Exports fell 1.1 percent, the second straight quarterly decline. Imports dropped 1.5 percent.
Crude oil is Canada’s top export, and lower prices triggered a deterioration in housing markets in Alberta, site of major oil sands deposits.
On a monthly basis, Canada’s gross domestic product fell 0.2 percent in March, the third straight decline. The contraction was led by a 2.6 percent fall in mining, quarrying, and oil and gas extraction. Economists forecast a monthly GDP expansion of 0.2 percent.