SHRINKING FEELING

Economists caught off guard as oil and gas, mining sectors mark sixth-straight decline

OTTAWA— Canada’s economy unexpectedly shrank for the fourth month in a row in April as oil and mining slumped, opening the door to a second interest-rate cut from the central bank this year.

Output shrank 0.1 per cent to an annualized $1.65 trillion, Statistics Canada said Tuesday in Ottawa. None of the 20 economists surveyed by Bloomberg predicted a decline and their median estimate was for a 0.1-per-cent expansion.

The oil and gas, mining and quarrying group fell 2.6 per cent in April, marking the sixth consecutive decline. Oil and gas extraction dropped 3.4 per cent as non-conventional oil producers experienced “maintenance shutdowns and production difficulties,” Statistics Canada said. Mining and quarrying fell 3.4 per cent on declines in copper, nickel, iron and coal.

The first report for the second quarter shows weakness extended from the January-to-March period, when output shrank at a 0.6-percent annualized pace on a drop in energy prices and investment. The data failed to show strength in nonenergy exports and consumer spending the Bank of Canada was counting on to as drivers of growth, raising pressure to cut interest rates again at the next meeting on July 15.

“They shouldn’t wait any longer, and proceed with a rate cut,” Jimmy Jean, a strategist in the fixed-income group at Desjardins Capital Markets in Montreal, said by telephone. “We aren’t seeing the expected recovery in the non-energy sectors.”

Canada’s dollar reversed early gains after the report. Federal government bond yields declined, including fiveyear debt that fell four basis points to 0.87 per cent.

The Bank of Canada’s April 15 economic forecast predicted gross domestic product would grow at a 1.8per-cent annualized pace between April and June.

Governor Stephen Poloz on Sunday likened his interest-rate cut in January to life-saving surgery following the shock of a drop in crude oil prices, saying that was a greater concern than record consumer debts.

“If the doctor says you need surgery to avoid death, the side effects usually don’t deter you, you just go ahead and manage them somehow,” Poloz said during a panel talk at the Bank for International Settlements. “Other issues must be subordinate and I think of them as side effects.”