Canada’s economy shrank in the second quarter for the first time since the 2008-09 recession owing to a sharp deterioration in the foreign trade balance.
Statistics Canada reported on Wednesday that gross domestic product dipped at an annual rate of 0.4 per cent, adjusted for inflation, compared with 3.6 per cent growth in the first three months of the year.
While Canada has been one of the strongest performers among industrial countries, the slowdown underlines its vulnerability to upheavals beyond its borders, especially the US which makes up close to three-quarters of exports.
The second-quarter data will reinforce the Bank of Canada’s recent retreat from planned interest rate rises later this year. “Interest rate increases are off the table now, which is a sharp contrast from where we were a few months ago”, said David Madani, economist at Capital Economics in Toronto.
Export volumes slipped 8.3 per cent year on year in the second quarter, while imports rose 10 per cent. The drop in exports was partly due to two temporary setbacks: supply disruptions in the North American motor industry caused by the Japanese earthquake, and wildfires and maintenance shutdowns in Alberta’s oil industry.
But Mr Madani said that these factors “are not the complete story”.
Jim Flaherty, finance minister, said: “As we all know, global economic growth has been weak in recent months and as a trading nation, we must recognise that turmoil abroad will inevitably have an impact on our economy”.
Mr Madani said that Capital Economics was sticking to its 2011 GDP growth forecast of 2.7 per cent but that “clearly, there’s some downside risk here”.
Mr Flaherty said: “Our domestic economy remains strong, with consumption, and particularly business investment, continuing to expand”.
Canada’s property market also remains far more resilient than in the US, with prices in some cities, notably Toronto and Vancouver, still near record levels. A housing price index published by Teranet and National Bank posted its strongest gain in almost two years in June, and its seventh advance in a row. Prices were an average of 4.5 per cent higher than a year earlier.
However, Mr Flaherty and Mark Carney, Bank of Canada governor, have warned of a housing bubble, and that consumers risk becoming dangerously overstretched.
On the trade front, the ruling Conservatives are taking numerous initiatives to lower Canada’s dependence on the US. Ottawa is negotiating a bilateral trade agreement with the European Union as a follow-up to several others signed over the past five years. Stephen Harper, prime minister, visited Brazil in mid-August, and is due to travel to China in November.
Source: www.ft.com
Statistics Canada reported on Wednesday that gross domestic product dipped at an annual rate of 0.4 per cent, adjusted for inflation, compared with 3.6 per cent growth in the first three months of the year.
While Canada has been one of the strongest performers among industrial countries, the slowdown underlines its vulnerability to upheavals beyond its borders, especially the US which makes up close to three-quarters of exports.
The second-quarter data will reinforce the Bank of Canada’s recent retreat from planned interest rate rises later this year. “Interest rate increases are off the table now, which is a sharp contrast from where we were a few months ago”, said David Madani, economist at Capital Economics in Toronto.
Export volumes slipped 8.3 per cent year on year in the second quarter, while imports rose 10 per cent. The drop in exports was partly due to two temporary setbacks: supply disruptions in the North American motor industry caused by the Japanese earthquake, and wildfires and maintenance shutdowns in Alberta’s oil industry.
But Mr Madani said that these factors “are not the complete story”.
Jim Flaherty, finance minister, said: “As we all know, global economic growth has been weak in recent months and as a trading nation, we must recognise that turmoil abroad will inevitably have an impact on our economy”.
Mr Madani said that Capital Economics was sticking to its 2011 GDP growth forecast of 2.7 per cent but that “clearly, there’s some downside risk here”.
Mr Flaherty said: “Our domestic economy remains strong, with consumption, and particularly business investment, continuing to expand”.
Canada’s property market also remains far more resilient than in the US, with prices in some cities, notably Toronto and Vancouver, still near record levels. A housing price index published by Teranet and National Bank posted its strongest gain in almost two years in June, and its seventh advance in a row. Prices were an average of 4.5 per cent higher than a year earlier.
However, Mr Flaherty and Mark Carney, Bank of Canada governor, have warned of a housing bubble, and that consumers risk becoming dangerously overstretched.
On the trade front, the ruling Conservatives are taking numerous initiatives to lower Canada’s dependence on the US. Ottawa is negotiating a bilateral trade agreement with the European Union as a follow-up to several others signed over the past five years. Stephen Harper, prime minister, visited Brazil in mid-August, and is due to travel to China in November.
Source: www.ft.com
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