Export Slump Stalls Canada Growth in Second Quarter
Canada’s economic growth rate remained stalled in the second quarter as slowing export growth offset a pick-up in business investment and an increase in stockpiles, suggesting little reason for an increase in policy interest rates.
Gross domestic product grew at a 1.8 percent annualized pace in the three-month period, matching the revised January- March figure. The median forecast of 25 economists surveyed by Bloomberg News was for the rate to fall to 1.6 percent from an originally reported 1.9 percent first quarter pace.
The data confirm Canada’s economy has lost momentum over the past year because of a weakening global recovery, growing at an average annual 1.8 percent pace over the past three quarters. That’s down from the 3 percent pace in the two years after the country emerged from the 2009 recession, giving Bank of Canada Governor Mark Carney less scope to raise borrowing costs.
The Canadian economy is “not weak enough to cause serious concerns, but certainly on the other side, not strong enough to get the bank off the sidelines,” said Doug Porter, deputy chief economist at BMO Capital Markets in Toronto.
Today’s report is the last major indicator before the Bank of Canada’s Sept. 5 interest-rate decision. The bank’s key policy rate has been 1 percent since September 2010, the longest unchanged period since the 1950s. Swaps trading shows investors priced in 7 basis points of tightening by the bank’s April 2013 decision, down from 20 basis points on Aug. 15.
“This is another print that makes it somewhat unusual to have a hawkish sounding Bank of Canada,” Derek Holt, vice president of economics at Scotia Capital Inc. in Toronto, said in a note to clients, citing the economy’s reliance on inventories and weak consumer and government spending, housing and exports.
Finance Minister Jim Flaherty said the GDP figures show that the expansion is “modest”, and the country’s economy remains relatively stronger than other major industrialized economies. The U.S. economy grew at a 1.7 percent pace in the second quarter.
Carney reiterated Aug. 22 that an interest-rate increase “may become appropriate” as Canada completes a recovery from a recession that ended in mid-2009 with the lowest borrowing costs of any country not directly affected by the financial crisis.
Carney said in a speech that while the economy has been affected by “short-term special factors” such as maintenance shutdowns of energy projects, growth is expected to accelerate through next year and its momentum remains in line with potential output.
The economy grew 0.2 percent on a monthly basis in June, Ottawa-based Statistics Canada said today, higher than the median economist forecast of 0.1 percent gain.
Non-residential business investment rose at an annualized 9.4 percent rate in the second quarter, the fastest pace in a year and surpassing pre-recession levels for the first time, the data show. Businesses also added an annualized C$7.01 billion ($7.08 billion) in inventories during the quarter, meaning stockpiles added 1.7 percentage points to growth in the period, the largest single contribution.
Exports grew at a 0.8 percent pace, the slowest in a year, even as imports accelerated to the fastest growth rate since the second quarter of 2011. Net exports have acted as a drag on growth for two consecutive quarters.
Consumer spending growth accelerated to a 1.1 percent annualized pace in the second quarter from 0.7 percent in the first quarter. Total domestic demand growth accelerated to 1.7 percent from 1.3 percent.
Growth in housing investment slowed to 1.8 percent in the second quarter, the slowest since the last quarter of 2010. Government spending fell by an annualized 0.5 percent, its second consecutive quarterly decline.
The personal savings rate rose to 3.6 percent in the second quarter, up from 3.1 percent in the first, Statistics Canada said.
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