Economic recovery continues at a crawl

The numbers are creeping up, but strong surges are a ways off

OTTAWA – Dragging the Canadian economy out of its lethargy could be a long, hard haul.

Five straight months of growth might ring positive, but not when those increases are uninspiring and likely to remain that way for some time.

Canada managed a modest 0.2 per cent gain in July, although slightly better than expected, and marginally higher than the 0.1 per cent advance in the previous month, which was revised down from 0.2 per cent in Friday’s report from Statistics Canada.

Economists had forecast 0.1 per cent growth in July, the first indication of how the third quarter might be shaping up.

“It doesn’t really change the story,” said Sal Guatieri, senior economist at BMO Capital Markets.

“Canada’s economy continues to grow at a subpar rate. We’re not expecting much improvement in the current quarter or for the rest of this year,” he said. “Given that consumers are curbing the rate of borrowing, the housing market is cooling, and the Canadian dollar remains strong, it’s difficult to see the economy gaining strength in the near-term.”

Manufacturing was up 0.6 per cent in July, StatsCan said in Friday’s report, following a decline of 0.7 per cent the previous month.

Production of durable goods was higher, led by computers and electronics, and nondurable goods also rose on the strength of petroleum and coal products.

Wholesale trade was up 0.2 per cent, recovering from a 0.9 per cent decline in June, with petroleum products and personal and household goods accounting for much of the rebound.

“We were expecting quite a bit of manufacturing weakness, given some of the global slowdown we’ve been seeing. So, we were quite surprised to see that manufacturing strength,” said Sonya Gulati, senior economist at TD Economics.

“I just don’t think that strength is going to continue into the second half of this year, given the global economy climate.”

Gross domestic product rose by an annualized 1.8 per cent in the second quarter, the same pace as the first previous three months.

The Bank of Canada has forecast growth above two per cent in both the third and fourth quarters. That now looks optimistic and many economists expect the central bank to claw back its outlook.

“We’re certainly not expecting that rosy forecast,” said Gulati.

Many analysts see growth coming in below 1.8 per cent in the third quarter and slightly above that mark in the following quarter.

While consumers are still doing the heavy lifting in the economy, Gulati said, “just like with manufacturers, I just don’t see the consumer strength holding up.”

“We’re also expecting the handover to occur from the consumers to businesses and exporters, but that seems like it’s going in slow motion.”

The Bank of Canada has kept its key interest rate locked at one per cent since September 2010 to encourage spending by consumers and businesses.

Bank governor Mark Carney insists borrowing costs will eventually go up, but global economic woes have kept those plans on hold.

Many economists now do not expect a rate hike until the second half of 2013.