Canadian GDP Barely Crawling

July 31, 2008

Monthly real GDP, calculated from the supply side, edged unexpectedly 0.1% lower in May, the third negative growth reading in the last four reported months.  GDP rose only 0.6% between May 2007 and May 2008, a year during which industrial production slumped 4.6% including a 2.7% drop in energy output.  Construction slipped for a third straight time in May and registered on-year growth of just 0.4%.  Like overall GDP, wholesale trade and industrial production dropped for the third time in four months.  Energy output posted a fourth consecutive decline.  The retail sale had been a pocket of strength but firmed just 0.1% in May and by 0.3% at an annual rate over the last four reported months.  After dropping 0.3% saar in 1Q08, real quarterly GDP measured from the demand side is unlikely to top 0.5% in the second quarter.  The on-year consumer price increase is 3.1%, still cresting, and already exceeds the 3.0% central bank target interest rate.  However, monetary officials in Canada like their counterparts in Britain and Australia have no inclination to tighten and are instead counting on significantly sub-trend demand to achieve medium-term inflation objectives.

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