Canada's economy shrank in second quarter – agency

31 August 2011 17:03  [Source: ICIS news]

TORONTO (ICIS)--Canada’s economy declined in the second quarter, mainly because of lower exports, a statistics agency said on Wednesday.

Canadian GDP fell by an annualised 0.4% in the second quarter, after expanding 3.6% in the first quarter, Statistics Canada said.

The decline compares with 1.0% annualised second-quarter GDP growth in the US.

Canadian second-quarter exports declined 2.1% after two quarters of sequential gains.

Energy exports contributed the most to the second quarter decline. Canada’s oil and gas production fell in the second quarter, partly due to wildfires in northern Alberta.

Output in the manufacturing industries also declined. Motor vehicle sector output fell partly due to supply disruptions caused by Japan’s earthquake and tsunami disaster in March.

“The Canadian economy really did stall in the second quarter,” Andrew Gretzinger, economist at Toronto-based Manulife Asset Management, said.

One factor weighing on the Canadian economy is the continued strength of the Canadian dollar vis-a-vis the US dollar, he said.

The strong Canadian currency prompts consumers and others to buy in the US, thus hurting Canadian retail and manufacturing sales.

“Yes, it’s great for [Canadian consumers] to get all that cheap stuff from the US, but then, people are not working in Canada because they are not making it,” he said.

Gretzinger said he is not optimistic for the current third quarter, given the stock market turmoil and potential debt defaults in the euro zone.

“The third quarter probably will not be that great,” he said.

Gretzinger also said that Canada’s central bank, the Bank of Canada, will likely keep interest rates frozen after the US federal reserve bank said it would not raise rates for two years.

“Whatever happens in the US will sift across the border, that’s always been the case,” he said.

Even though Canada has tried to diversify its economy away from the US, the US still remains its largest trading partner by far, he added.

Read Paul Hodges’ Chemicals and the Economy Blog

By: Stefan Baumgarten
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