Economy growth slows during summer months
By Julian Beltrame
OTTAWA — Canada’s economic recovery all but flatlined during the summer, as the high dollar sabotaged the ability of manufacturers to sell their goods to foreign markets.
Statistics Canada reported Tuesday that the July to September period saw the economy slow to a crawl, eking out a one per cent gain in gross domestic product.
That’s about half a point less than analysts and the Bank of Canada had been expecting, and compares unfavourably to the U.S.’s 2.5 per cent advance during the same period.
“The story is staring us in the face. We can thank a strong Canadian dollar for a not-so-strong Canadian economy,” said CIBC chief economist Avery Shenfeld.
“Our exports to the U.S. are floundering in quarters in which the U.S. has seen a huge rise in its overall imports.”
Exports declined 1.3 per cent on a quarter-to-quarter basis, a whopping five per cent on an annual basis. The trade imbalance — imports rose 6.4 per cent annualized — sliced about 3.5 per cent off the gross domestic product.
The other major weakness was residential construction, which fell an annualized 5.3 per cent annualized.
Economists had expected a weak quarter, but not this weak. The consensus was for a growth rate of about 1.5 per cent, while the Bank of Canada had forecast a 1.6 per cent advance.
Part of the surprise was that September, the last month of the quarter, showed the economy contracting 0.1 per cent, when a flat or tiny uptick had been expected.
The September data is also giving a weak send-off to the fourth-quarter performance, which won’t be known for some time.
“In a nutshell, this result is a clear disappointment,” said Douglas Porter of BMO Capital Markets. “Bottom line for the Bank of Canada — there’s zero rush to raise (interest) rates again.”
Bank governor Mark Carney is due to make his next interest rate announcement next week, but few expect him to move the policy rate above the current one per cent.
TD Bank economist Diana Petramala said her bank’s view is that Carney won’t move again on interest rates until the third quarter of next year, an opinion shared by Shenfeld.
Still, she said she expects the third quarter to have been the bottom of the economic deceleration, and that the fourth quarter will see a modest improvement to about two per cent.
The markets saw little to like in the GDP numbers, taking it out on the loonie in early morning trade. The dollar fell over 80 basis points to 97.34 US.
Statistics Canada did upgrade second-quarter growth somewhat by three-tenths of a point to 2.3 per cent, but that effect was offset by a downward revision of the first quarter to 5.6 per cent from the previously reported 5.8.
For the year so far, Canada’s economic speed is barely ahead of the U.S.
Based on recent performance, however, it’s no contest — the U.S. economy advanced by 2.5 per cent in the third quarter, compared to Canada’s one per cent.
The welcome news in the report was that, as expected, Canadian businesses were finally taking advantage of the high dollar to purchase machinery and equipment and gear up for future production. Investments in machinery and equipment rose 6.5 per cent in the quarter — 29 per cent annualized — led by purchases in industrial machinery, and computers and other office equipment.
On a year-to-year basis, business investment was up 8.7 per cent, as opposed to the 20-per-cent decline of 2009.
Consumers also played their part, spending 3.5 per cent annualized more on services, cars, and clothing and footwear. The Canadian Press http://news.therecord.com/Business/article/822230
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