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Canada's recession likely over as economy registers first growth in 11 months

OTTAWA - Canada's economy grew for the first time in 11 months in June, an encouraging signal that the country's first recession in almost two decades is over.

OTTAWA - Canada's economy grew for the first time in 11 months in June, an encouraging signal that the country's first recession in almost two decades is over.

The June growth of 0.1 per cent was less than the consensus economist forecast of 0.2, as was the second-quarter contraction of 3.4 per cent, in annualized terms.

And Statistics Canada revised the first-quarter retreat from the previously reported 5.4 per cent to 6.1 per cent - not only making it the worst quarterly contraction on record dating back to 1961, but making the quarterly and June numbers slightly less impressive because they stem from a lower starting point.

Still, Transport Minister John Baird welcomed the first growth in almost a year as an indication of progress, while warning the recovery is "tentative and fragile" and that an election at this time would pose added risk.

He said it was important that federal infrastructure spending that is coming on stream not be disrupted.

"This is and will continue to be a difficult year for the Canadian and global economy," Baird told reporters in Ottawa.

"It would be irresponsible to interrupt our important work on the economy with an unnecessary election."

Economists were also guarded about prospects for the future, although most said the June turnaround, along with other data already published for July, did indeed show that the economy has begun to revive.

"Canada's recession is finally over," said economist Krishen Rangasamy of CIBC World Markets."

"The good news is that Canada's output has stopped contracting ... and with the auto plant restarts in July, coupled with inventory replenishments on both sides of the 49th parallel, Canada should see a big bounce in the third quarter (the current July-September period)."

Bank of Montreal deputy chief economist Douglas Porter also said the June number signalled that the recession ended in mid-year, adding that the country's domestic demand actually began recovering earlier, sometime in the spring.

Canada's economy is still being hobbled by an extremely depressed exports sector, low corporate profits and weak business investment, however.

"The big story in the second quarter was that the economy was still facing extreme weakness imposed on it from abroad. We had this deep decline in exports and we had businesses responding to that by really cutting back on capital spending and inventories," he explained.

"The bigger issue is how robust and sustainable the recovery is. This could be a very halting recovery," he added."

Bank of Canada governor Mark Carney forecast last month the economy would bounce back by 1.3 per cent in the third quarter, and even higher moving forward.

But many economists wonder if that kind of straight-line recovery will be possible without real growth in the United States, igniting demand for Canadian exports in oil, wood products, autos and machinery.

On a quarter-to-quarter basis, Statistics Canada said the economy slipped 0.9 for the second quarter as a whole, spanning the months of April through June, but that was an improvement over the 1.6 per cent drop recorded in the first quarter of 2009.

June's growth was driven by higher activity in oil and gas, wholesale trade and real estate.

Decreases in metallic ore mines, manufacturing and, to a lesser extent, construction partly offset these gains.

The output of service industries rose 0.4 per cent in June, the largest increase since the start of the year.

Goods-producing industries registered a decline of 0.6 per cent, although that was less pronounced than those of the previous seven months.

Manufacturing declined 0.7 per cent in June. Durable goods manufacturing fell 1.4 per cent, while the manufacturing of non-durable goods grew 0.1 per cent.

The home resale market rebounded in June, producing an 8.3 per cent increase in the activities of real estate agents and brokers.

But the construction sector declined 0.5 per cent for the month, mainly because of a 1.5 per cent drop in home building.

For the second quarter as a whole, consumer spending rose 0.4 per cent. Spending on durable goods, especially autos, rose 1.5 per cent.

Housing sales also rebounded, boosting the real estate market after five consecutive quarterly declines.

Exports of goods and services and business investment in machinery and equipment were both down, but not as sharply as in the first three months of the year.

Second-quarter exports were down 5.2 per cent after falling 8.7 per cent in the first quarter. Most categories of goods declined, particularly machinery and equipment, industrial goods and materials, and energy products.

Imports fell 2.2 per in the second quarter. It was the fourth quarterly decrease in a row, but was not as steep as in the previous two quarters.

Nominal GDP - without adjusting for inflation - decreased 0.6 per in the quarter, a much slower decline than in the two previous quarters. Corporate profits fell 11 per cent, the third consecutive quarterly double-digit decline.

As was the case in the previous two quarters, energy, mining and financial industries all reported lower profits.

Personal income edged up during the quarter, after falling 0.9 per cent in the first quarter spanning January through March. Employment Insurance benefits increased by 23 per cent.

While income was up, the savings rate was 4.4 per cent, the lowest rate since 1994.

 
 
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