Canada’s Second-Quarter Growth Slows to 1.7% Pace

Canada’s economic growth slowed in the second quarter as business investment and energy exports declined, cementing views that the central bank won’t raise interest rates for at least a year.

Gross domestic product rose at a 1.7 percent annualized pace from April to June, Statistics Canada said today in Ottawa, while economists surveyed by Bloomberg forecast a 1.6 percent rate. The quarter ended with a 0.5 percent decline for June that was the biggest since March 2009, during the last recession.

Canada’s economy is slowing as its Group of Seven peers show signs of improvement. U.S. growth quickened to a 2.5 percent pace in the second quarter and the euro-area emerged from a record six quarters of recession, while U.K. growth accelerated to 0.7 percent.

Growth will be “choppy” in coming months because of flooding in Alberta and a Quebec construction strike during June, Bank of Canada Governor Stephen Poloz said in a July 17 forecast. Today’s data is the last major report to be used in deliberations for the central bank’s Sept. 4 interest-rate decision, and economists say policy makers will keep the benchmark at 1 percent, where it’s been since September 2010.

“The Bank of Canada is likely to be on hold for at least a year” as growth rebuilds, said Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS) in Toronto. “The drop quarter over quarter will be widely attributed to flooding in Alberta and labor issues in Quebec,” she said, adding that U.S. growth will help support a Canadian recovery.

Expansion Forecast

The Canadian dollar was little changed at C$1.0531 per U.S. dollar at 9:50 a.m. in Toronto. It earlier depreciated to C$1.0550, the weakest since Aug. 23. Two-year bond yields were unchanged at 1.19 percent.

The central bank forecast expansion at a 1 percent annual rate in the second quarter, accelerating to 3.8 percent growth from July to September, aided by the impact of a weaker currency and growing U.S. orders.

“They will probably have to take that third-quarter rebound down now,” said Robert Kavcic, senior economist at Bank of Montreal in Toronto. “The effect of those special factors like the flood and the construction strike weren’t as big as they were expecting,” he said, adding the pace of consumer spending “probably isn’t too sustainable.”

Consumer spending supported growth by rising at the fastest pace since the fourth quarter of 2010, with the 3.8 percent annualized increase led by automobile purchases, Statistics Canada said.

Company Spending

Business fixed-capital investment fell at a 0.5 percent pace in the second quarter after a 1.3 percent decline in the prior three months. Part of the drop stemmed from reduced work on non-residential buildings during the Quebec strike, Statistics Canada said.

Export growth fell behind the pace of imports in the second quarter, with shipments abroad rising 0.9 percent while goods and services brought in from other countries advanced 1.5 percent. Energy exports fell 6.3 percent.

“The health of the global economy remains somewhat uncertain,” ATS Automation Tooling Systems Inc. (ATA) Chief Executive Officer Anthony Caputo said on an Aug. 14 earnings call. “In North America, the recovery is slow, but encouraging, while Europe and Asia still remain weak.”

Government spending rose at a 2.2 percent pace, while business inventory accumulation slowed to C$5.10 billion ($4.85 billion) from C$7.78 billion.

Monthly Decline

The agency also said the 0.5 percent monthly contraction in June was led by construction and manufacturing. The wholesale, retail, and mining and oil and gas industries also decreased during the month. The decline was larger than the 0.4 percent median forecast in a Bloomberg economist survey with 21 responses. The economy was 0.9 percent larger in June than the same month a year earlier.

Statistics Canada today also reduced its estimate of the first quarter expansion to 2.2 percent from 2.5 percent, and revised down its estimate of the annual increase in May to 1.5 percent from 1.6 percent.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net

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