Economy shrinks in second quarter, worst showing since financial crisis
Craig Wong, The Canadian Press
Published Wednesday, August 31, 2016 4:59AM EDT
Last Updated Wednesday, August 31, 2016 2:09PM EDT
OTTAWA -- Weak exports and the Alberta wildfires hammered the Canadian economy as it posted its worst quarterly performance since the global financial crisis, but the three-month period ended on a positive note with growth in June.
Statistics Canada said real gross domestic product fell at an annualized rate of 1.6 per cent during the second quarter, the most since the second quarter of 2009.
But real GDP rose 0.6 per cent in June -- better than the 0.4 per cent expected by economists -- as production in the oilsands started to resume.
"Hopefully the June number gives a fairly good hand-off to the third quarter and we can put the wildfires and the impact in the rear-view mirror," HSBC Canada chief economist David Watt said.
The second-quarter contraction compared with growth at an annual pace of 2.5 per cent in the first quarter, which was revised from an initial reading of 2.4 per cent.
Watt said the Canadian trade figures over the coming months will be key.
"I'm going to be paying very close attention to the numbers of the next couple of months and sort of questioning where's the export demand going to come from and is it going to offset what I fear will be a weaker trend for spending by households," he said.
Statistics Canada will release July trade figures on Friday.
The second-quarter drop in GDP came as exports of goods and services fell 4.5 per cent following a 1.9 per cent increase in the first three months of the year. Exports of goods were down 5.5 per cent, while exports of services grew 0.6 per cent.
Already hurting from the drop in energy prices, the Alberta wildfires dealt a blow to the energy sector, forcing the evacuation of Fort McMurray, Alta., and the shutdown of several oilsands operations in the region.
Energy product exports fell 7.5 per cent, with crude and bitumen exports declining 9.6 per cent and refined petroleum products down a whopping 19.6 per cent. Motor vehicles and parts also dropped 5.8 per cent due to lower exports of passenger cars and light trucks.
Exports of aircraft and other transportation equipment and parts were up 5.6 per cent.
TD Bank economist Brian DePratto said after a strong start to the year, exports have been moving backwards.
"Once we get past the near-term noise, the pace of economic growth will likely be lukewarm," DePratto wrote in a report.
"This reflects a number of economic headwinds, including an aging population, high household indebtedness, and the ongoing economic rotation process."
The second-quarter result reported Wednesday was worse than forecast by the Bank of Canada in its July monetary policy report. The central bank had predicted that the economy would contract at an annual rate of 1.0 per cent during the second quarter due to the damage caused by the wildfires.
But the Bank of Canada has also predicted that growth will pick up in the third quarter to an annual pace of 3.5 per cent as oil production ramps up and rebuilding efforts begin in Fort McMurray. It also expects the federal government's new Canada child benefit and a boost to infrastructure spending to lend a hand to the economy.
The Bank of Canada's next rate announcement is scheduled for next Wednesday. Economists expect the central bank to leave its key policy rate unchanged at 0.5 per cent.