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 this 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.”
Canada’s dollar weakened as much as 0.7 percent after the report before trading little changed at C$1.2436 per U.S. dollar at 2:33 p.m. Toronto time. Government bond yields fell, with debt due in two years down 6 basis points to 0.56 percent.
In the U.S., gross domestic product shrank at a 0.7 percent annualized rate, revised from a previously reported 0.2 percent gain, according to Commerce Department figures issued Friday in Washington.
The Canadian economy is likely to rebound with “solid” growth in the second quarter as weakness in exports and consumer spending eases, Shenfeld said.
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. Canada in January became the first Group of Seven nation to cut interest rates in response to plummeting oil prices, saying the shock would weigh on everything from inflation to business spending.
In April the bank forecast output would be little changed between January and March before quickening to a 1.8 percent annualized pace in the second quarter.
“Most people would say that there’s still some momentum that will build as the year goes on, and we believe we’ll be able to participate and grow the business in that environment,” Sean McGuckin, chief financial officer of Bank of Nova Scotia, Canada’s third-largest lender by assets, said in an interview today.
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.