Canadian Growth Very Negative Last Quarter

June 1, 2009

Real GDP plunged 5.4% at a seasonally adjusted annual rate (saar).  In combination with a 3.7% drop in 4Q08, it was the greatest two-quarter decline in nearly a half century, and yet analysts had actually braced for a bigger-than-6% drop.  GDP fell 2.1% from 1Q08, twice as much as the four-quarter drop to 4Q08.  Both quarter-on-quarter and year-over-year growth were similar to the latest U.S. trends, which were -5.7% saar and -2.5% y/y, respectively.  Canada predictably got whacked by weak U.S. demand and soft commodity prices.  Real GDP compiled monthly from a supply-side sectoral standpoint did worse in March than February, dropping 0.3% after a dip of 0.1%.  Weakness in March was concentrated in factory production (-1.0%) and energy (-1.9%). 

Investment exerted the predominant drag on GDP last quarter.  Non-residential investment contributed negative 3.8 percentage points (ppts), and residential spending accounted for an additional 1.5 ppts.  A huge rundown of inventories, net of the statistical discrepancy, made a negative 3.6 ppt contribution to growth, and personal consumption depressed GDP by 0.9 ppts.  Mitigating positive contributions were made by net exports (4.0 ppts) and government spending (0.3 ppts).

As in other advanced economies, Canadian growth is expected to remain negative but to a much smaller degree in the spring and summer quarters.  Improvement will be seen in investment, which plummeted 20.7% saar last quarter and exports (-30.4% saar in 1Q09).  Considerable progress was made in reducing inventories, and the terms of trade will be better.  In 1Q09, by contrast, export prices (down 6.7%) fell four times faster than import prices (-1.6%).

April Canadian producer prices were also reported this morning, indicating a 12-month drop of 2.2% after -0.1% in the year to March.  An appreciating exchange rate shaved 0.8 ppts off the monthly PPI change, which would have otherwise been +0.3% instead of -0.8%.  Over the past twelve months, the impacts of exchange rate and oil price movement on the PPI were each large but offsetting.  Raw material prices sank 31.2% over the 12 months to April and even 11.7% when excluding mineral fuels.

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



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