Canada Economy Unexpectedly Stalls in April on `Payback' for March Growth
Canada’s gross domestic product unexpectedly stalled in April after seven previous gains, as retailing and manufacturing declined while mining and wholesaling advanced.
Canada’s economic output remained at a seasonally adjusted annual rate of C$1.23 trillion ($1.17 trillion) in April, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News predicted a 0.2 percent gain, based on the median of 16 estimates.
The Bank of Canada says growth will slow to a 3.8 percent annualized pace in the April-to-June period after expanding at a 6.1 percent pace in the first quarter, due in part to slower household consumption. Consumer spending was spurred earlier this year by temporary tax measures that have now expired, and mortgage rates climbed in March and April.
“We’ve had a pretty strong run of growth and April will be one of those payback months,” said Michael Gregory, senior economist at BMO Capital Markets in Toronto. “It will get everyone a little bit more worried about the near term prospects.”
He predicts the Bank of Canada will raise interest rates at its July 20 meeting and then pause.
The Canadian currency weakened 0.3 percent to C1.0587 per U.S. dollar at 10:25 a.m. in Toronto, compared with C$1.0560 yesterday. One Canadian dollar buys 94.45 U.S. cents.
Ebbing Recovery
Other reports this month have signaled an ebbing recovery. Statistics Canada said last week that inflation slowed to 1.4 percent in May from a year ago, and reported June 4 that employment growth slowed to 24,700 for May from a record 108,700 jump for April.
Today’s report lowers the chance the Bank of Canada will increase rates at its next meeting, because growth for May and June must average 0.5 percent to meet the central bank’s second- quarter forecast, said Jonathan Basile, a Credit Suisse economist in New York.
“It’s a higher hurdle to clear,” Basile said. “They were already noncommittal after the last meeting, especially given what was going on in European funding markets.” The bank’s June 1 rate statement said the timing of future rate increases would weigh a domestic recovery against an uneven global recovery including concern that European governments would be unable to finance deficits.
Retails, Factories Decline
Retailing fell 1.7 percent in April, almost retracing March’s 1.9 percent increase, led by declines at new car dealers and clothing stores. Manufacturing fell 0.3 percent, the first decline since August 2009. Production of non-durable goods fell 1.2 percent on pharmaceuticals, printing and food.
An increase in mining, oil and gas extraction, which rose 0.5 percent, helped to offset April’s declines, while wholesale trade grew 0.6 percent, bringing its advance over the last year to 12 percent.
Overall gross domestic product has gained 3.3 percent since April 2009, Statistics Canada said today.
Canada’s economic recovery won’t stall if there is a gradual removal of government and central bank stimulus, said Steve Snyder, chief executive officer of TransAlta Corp., Canada’s largest publicly traded electricity producer.
“At some point the stimulus has to stop and I think most companies are prepared for that,” Snyder said in a telephone interview from Calgary on June 23.
To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.
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