Slow growth to stay the norm for Canada
OT TAWA • Expect to see the Canadian economy ho-humming along for the rest of the year.
Forget the heady days of only a few months ago, growth in this country is expected to remain subdued — likely around a 1.5% annualized quarterly pace. That’s a far cry from the surprising 2.5% spurt between January and March.
The economy is off to a weak start in the second quarter, with output in April relying heavily on wholesalers and retailers, and a marginal rebound in the manufacturing sector.
While gross domestic product grew for a fourth straight month, the 0.1% advance in April was the weakest performance this year, Statistics Canada said Friday, and matching many economists’ low-ball expectations. On a year-over-year basis, the economy grew at a pace of 1.4% in April.
“The economy is basically locked in a pretty meagre growth environment of around 1.5% — that’s about what we saw on average for last year and that looks like about what we’ve going to see for 2013 as well,” said douglas Porter, chief economists at BMO Capital Markets.
April’s growth came mainly from service industries, which added 0.3% — driven by a 0.6% gain in wholesale trade and an increase of 0.5% in retail trade. The sector also saw a 0.6% increase in finance and insurance and a 0.5% gain in transportation and warehousing.
The manufacturing sector, whose fortunes have continued to wane, edged up 0.2% in April after a revised flat performance the previous month. Still, year-over years, manufacturing is down 2.7%.
“That sec tor has been sounding a sour note for the better part of the last year,” Mr. Porter said.
Construction declined 0.4% after a flat March, which was
also revised. “I wouldn’t make a big deal about it, because I think construction is going to rebound in May. Generally speaking it’s still healthy — it’s just not going to be a growth leader,” he said.
Notably, the oil and gas extraction sector fell 2.7% in April. “We did see the as-expected weakening in the energy production side,” said dawn desjardins, assistant chief economist at RBC economics. “But we think we’re going to see some improvement as we go forward, but this did follow some pretty good gains in the prior two months.”
The only real standout performance in April was the arts, entertainment and recreation sector, with a 3.4% jump helped by a labour-dispute extended hockey season.
“The prolonged [NHL] season meant that there was a full set of games going on in April — and the fact four teams were still going at it in the early playoffs will give small boost to May as well,” Mr. Porter said.
Mr. Porter said BMO has reduced its second-quarter growth forecast to an annualized 1.5% from 1.8%.
RBC is forecasting 0.2% growth in May and a flat reading in June, with Ms. desjardins saying “the floods in Alberta are obviously going to take their toll.” However, she still expects 2% annualized growth in the second quarter.
“We will see the reconstruction and all the building within that province. So, we will get a bit of a lift as we go forward,” she said. “That will give some strengthening to the economy’s momentum in the second half of this year.”
Ms. desjardins said “we’re on the optimistic side in terms of growth. The u.S. economy finally is looking to be really quite secure in terms of the recovery. We do think the conditions are in place now for the u.S. to do better — and to that end, from the export perspective, we expect that to continue.”