Canada’s GDP has big­gest monthly de­cline

Al­berta fires main fac­tor in 6.4 per cent drop in nat­u­ral re­sources sec­tor: Statis­tics Canada

The Hamilton Spectator - - BUSINESS - ANDY BLATCH­FORD

The Al­berta wild­fires torched the Cana­dian econ­omy in May, driv­ing the coun­try into its worst one-month per­for­mance since the dark­est days of the Great Re­ces­sion seven years ago.

On Fri­day, Statis­tics Canada’s lat­est read­ing for real gross do­mes­tic prod­uct showed a con­trac­tion for the month of 0.6 per cent, a num­ber that re­vealed the ex­tent of the eco­nomic fall­out caused by the blazes that roared through the heart of oil­sands coun­try.

The dip in the econ­omy was a lit­tle deeper than ex­pected. Econ­o­mists had pre­dicted real GDP to re­coil 0.4 per cent, ac­cord­ing to Thom­son Reuters.

The num­ber, Canada’s worst monthly fig­ure since real GDP fell 0.8 per cent in March 2009, sup­ported the al­ready-dis­mal growth prospects for the sec­ond quar­ter.

The wild­fires led to the evac­u­a­tion of Fort Mc­Mur­ray, de­stroyed more than 2,000 struc­tures and shut down key crude op­er­a­tions.

The de­cline in real GDP for May was largely due to a 22 per cent drop in non-con­ven­tional oil ex­trac­tion, which Statis­tics Canada said was the sec­tor’s low­est level of out­put since May 2011.

The agency said the disas­ter was the main con­trib­u­tor to the 6.4 per cent drop in the over­all nat­u­ral re­sources sec­tor and the 2.8 per cent de­cline in the out­put of all good­spro­duc­ing in­dus­tries.

Man­u­fac­tur­ing out­put was also hurt. The in­dus­try was knocked back 2.4 per cent in May in large part due to a 15 per cent drop in out­put at petroleum re­finer­ies, which was cre­ated by a short­age of crude oil.

Even with­out the neg­a­tive con­se­quences of the fires, the econ­omy still had dis­ap­point­ing re­sults in other sec­tors.

Ex­clud­ing the de­cline in non­con­ven­tional oil ex­trac­tion, real GDP moved back­ward in May by 0.1 per cent, Statis­tics Canada said.

CIBC chief economist Avery Shen­feld pointed to a weak­ness in cap­i­tal spend­ing by busi­nesses, a let­down in ex­ports and a de­cline in construction.

“There were fires rag­ing in Al­berta, but the rest of the econ­omy wasn’t so hot,” said Shen­feld.

But he sug­gested the fee­ble num­ber for May should be put into per­spec­tive.

“Ex­clud­ing that one (non-con­ven­tional oil) sec­tor, GDP was down 0.1 — that is not the worst month we’ve seen,” he said.

“You have to, when there’s a sin­gle event like that, strip it out be­cause we know that (oil) pro­duc­tion will partly re­bound in June and then be back more ma­te­ri­ally in July. So, a one- or two-month dis­rup­tion isn’t re­ally in­dica­tive of the trend.”

The May head­line num­ber for real GDP fol­lowed a slim eco­nomic growth read­ing of 0.1 per cent in April. Be­fore that, the Cana­dian econ­omy limped through con­trac­tions of 0.2 per cent in March and 0.1 per cent in Fe­bru­ary.

Af­ter grow­ing at a sturdy an­nual rate of 2.4 per cent in the first quar­ter, the econ­omy is widely ex­pected to churn out a sig­nif­i­cantly worse re­sult in the sec­ond quar­ter.

Kr­ishen Ran­gasamy, se­nior economist with the National Bank, said Fri­day that due to a poor real GDP, num­bers in re­cent months mean the econ­omy will likely con­tract by be­tween one and 1.5 per cent in the sec­ond quar­ter.

But Ran­gasamy did high­light a bright spot in the May data: the re­silience of the ser­vices sec­tor, which grew by 0.3 per cent.

“For­tu­nately for Canada, there is still a buoy­ant ser­vices sec­tor, which hit an all-time high af­ter reg­is­ter­ing its eighth con­sec­u­tive gain in out­put,” he wrote in a re­search note to clients.

Ear­lier this month, the Bank of Canada pre­dicted the im­pact of the wild­fires to fuel a con­trac­tion of one per cent in the sec­ond quar­ter.

CANA­DIAN PRESS FILE PHOTO

The Cana­dian econ­omy took a big hit in May be­cause of the Al­berta wild­fires, Statis­tics Canada said Fri­day.

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