Canada’s first-quarter economic growth was slower than forecast and ended with a monthly contraction in March, as falling investment and oil production curbed export and consumption gains.
Gross domestic product rose at a 2.4 percent annualized pace, Statistics Canada said Tuesday in Ottawa, while economists surveyed by Bloomberg predicted a 2.8 percent increase. The agency also revised growth rates down for the prior three quarters.
The economy lost momentum each month, and the latest figure for March was a 0.2 percent contraction that exceeded the 0.1 percent decline economists expected. March’s contraction was led by a 2.8 percent drop in the mining, quarrying and oil and gas extraction category.
The weak hand-off is another obstacle to a second quarter already hindered by wildfires in Alberta this month that are curbing oil production. The Bank of Canada kept its key lending rate at 0.5 percent last week, signaling the economy may post a small second-quarter contraction before rebounding in the third. The outlook beyond then is clouded by weak business investment and record consumer debt burdens, versus an expected jolt from Prime Minister Justin Trudeau’s expanded deficit spending.
“The story throughout the first quarter was waning momentum,” Mark Chandler, head of fixed-income research at RBC Capital Markets in Toronto. “It’s not the sort of growth that you want to see at this stage,” he said of gains led by consumers instead of businesses.
Canada’s dollar weakened 0.2 percent to C$1.3077 per U.S. dollar at 8:49 a.m. Toronto time.
The first quarter extended the run of what Governor Stephen Poloz has called serial disappointment in a global recovery that brought mixed signs of business spending.
Corporate investment in non-residential structures, machinery and equipment fell by 9.7 percent in the first quarter, the fifth straight decline. At the same time, a burst of automobile production led a 6.9 percent gain in exports, a rebound from a 1.5 percent fall in the fourth quarter.
Automakers also led a C$6.9 billion ($5.3 billion) draw-down of business inventories, something that slowed first-quarter growth and could also lead to increased production in future if assembly lines need to replenish stock at dealerships.
The other main support for first-quarter growth -- the fastest pace since the end of 2014 -- was consumer spending. Consumption growth quickened to a 2.3 percent pace from 1.8 percent in the fourth quarter.
Other questions remain about the pace of the recovery. Statistics Canada cut the fourth-quarter growth estimate to 0.5 percent from 0.8 percent.
The monthly figures also showed a slowdown from the 0.5 percent gain in January to a 0.1 percent fall for February before the larger contraction in March.
The Bank of Canada said last week first-quarter growth appeared to be in line with its April estimate of a 2.8 percent expansion. Poloz warned the Alberta fires would curb the second-quarter growth rate by about 1.25 percentage points, after an April forecast of 1 percent.
In recent months, the governor has said it would take a major shock to lead him to add more stimulus, and his main forecast is a gradual recovery through next year led by non-energy exports.
(Updates with strategist quote in fifth paragraph.)