Canadian GDP Contracting Very Sharply

March 31, 2009

The monthly supply-side measure of Canadian GDP fell another 0.7% in January.  That drop was slightly greater than expected and brings the annualized rate of contraction over the three months between October and January to marginally more than 9%. Weakness in those three months was led by a plunge in factory output of nearly 30% annualized and drops in wholesale turnover of 27% and construction of 24%.  Automotive products have been hammered particularly hard. For the twelve months to January, real GDP fell 2.4%, and both manufacturing and wholesale turnover posted declines of more than 10%.

Canadian February producer prices also were reported this morning.  The 12-month PPI inflation rate rebounded to 1.6% from 1.2%, as the boost to import prices caused by a weakening Canadian dollar outweighed disinflation related to lower energy prices.  Raw material prices recorded a 1.7% monthly increase, as mineral fuel prices leaped 4.8%, but that index was 30.7% lower than in February 2008 due to drops of 45.5% in mineral fuels and 14.7% in all other items.

Bank of Canada officials will consider the softer Canadian dollar to be related to falling commodity prices and therefore appropriate.  With economic activity in rapid retreat, the gap between potential GDP and much lower actual GDP will get alarmingly wide.  To ward off the danger of deflation, central bank policy will be relaxed further.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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