ECONOMIC ROLLER-COASTER
Growth spurt may not stick around
The Canadian economy has been stretched and pulled in opposite directions for many months, and April was no exception.
The Alberta wildfires, which have added to lingering price-collapse disruptions in the oilpatch, and, more recently, the quick exit of Canadian teams from the National Hockey League’s Stanley Cup playoffs have kept growth in check.
Now Brexit is threatening more tugs on the economy in the months ahead.
Canada’s gross domestic product rose 0.1 per cent in April, Statistics Canada said Thursday, matching analysts’ forecasts and reversing two consecutive monthly declines — thanks mainly to gains in the manufacturing industry and the public sector.
But that positive start to the second quarter will likely fade quickly.
“While the economy rebounded after two consecutive months of decline, it will do little to lift growth in the second quarter,” said Charles St-Arnaud, a London-based economist at Nomura Global Economics, in a note to investors.
The economy “is likely to have contracted sharply in May as a result of the forest fires in Fort McMurray, which destroyed part of the city and shut down about 40 per cent of Canada’s oilsands production.”
St-Arnaud expects GDP will contract by about 1.3 per cent on an annualized basis between April and June, after growth at a pace of 2.4 per cent in the first quarter.
Economists still anticipate a rebound in the third quarter.
The wild card for the domestic and global economies is the expected fallout from last week’s referendum in the U.K., which saw voters narrowly support leaving the European Union.
“We do think the U.K. economy is going to struggle over the next six months,” said Douglas Porter, chief economist at BMO Capital Markets. “We may be in a holding pattern for a while until we get a bit more clarity in terms of who the U.K. prime minister will be.”
That uncertainty is expected to keep the Bank of Canada’s key interest rate on hold at 0.5 per cent far into 2017.
The central bank will update its domestic and global economic forecasts its quarterly Monetary Policy Report on July 13, the same day as policy-makers’ next scheduled rate decision.
In Thursday’s GDP report, Statistics Canada said output in the overall resources sector was down 1.4 per cent — led by a 2.4-per-cent drop in oil and gas extraction sector — due mainly to maintenance shutdowns that came before the wildfires in northern Alberta.
Related activities were also lower for mining and oil and gas extraction, down 2.1 per cent. Those support areas of the sector “remained at levels similar to those seen in early 2015,” the agency said.
The struggling manufacturing sector provided a surprisingly upbeat reading for April, with production rising 0.4 per cent — bouncing back from a 0.5-per-cent downturn in March and a 0.6-per-cent drop the previous month. Many of the increases were related to non-durable goods output.
Activity in the construction sector, another area that has struggled, was basically flat in April after only a marginal increase a month earlier that followed two previous downturns.
The public sector grew by 0.2 per cent in April, notably in education and administration. Wholesale activity also increased during the month, up 0.2 per cent, along with retail trade, which gained by the same amount.
Meanwhile, the elimination of Canadian NHL teams from the Stanley Cup playoffs was a big contributor to the 3.9-per-cent drop in the arts, entertainment and recreation sector, Statistics Canada said.
All seven Canadian teams were shut out from this year’s post-season action — and that hadn’t happened since 1970.