Canada economy takes biggest quarterly drop in 7 years

Started by MikeWB, August 31, 2016, 12:39:46 PM

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MikeWB

OTTAWA (Reuters) - Canada's economy shrank in the second quarter in its worst showing in seven years, hurt by a drop in exports and a disruption to oil production caused by wildfires in Alberta, but growth was still seen as likely to rebound later this year.

Although the second-quarter contraction was somewhat larger than the Bank of Canada had anticipated, the figures released on Wednesday were not expected to move the central bank off the sidelines at its meeting next week. Markets see a 92 percent probability that the bank will hold rates at 0.50 percent. [CA/POLL]

Upbeat growth in June also supported policymakers' expectations that the economy will pick up significantly in the third quarter, economists said.

"It's very much in line with the Bank of Canada's view that the economy stumbled badly through the spring," said Sal Guatieri, senior economist at BMO Capital Markets.

"I think the Bank of Canada is still confident that exports will turn up and lead the economic expansion in the second half of the year."

Gross domestic product contracted at an annualized 1.6 percent rate in the second quarter, Statistics Canada said.

That exceeded economists' forecasts for a contraction of 1.5 percent and was the biggest annualized decline since the second quarter of 2009, when Canada was in a global credit crisis-induced recession.

The Canadian dollar strengthened slightly against the greenback immediately after the report. [CAD/]

A drop in exports of goods and services was the main hit to growth in the second quarter. The decrease was widespread across most types of goods, including motor vehicles and consumer products.

Exports of energy products, including crude oil and crude bitumen, declined due to wildfires in May in the oil sands area of Fort McMurray, Alberta.

An acceleration in exports is important to the central bank's outlook, and Friday's trade report will be scrutinized for how they fared at the start of the third quarter.

Business investment remained weak, but the rate of decline was not as steep as it has been, an encouraging sign for the central bank.

"There are good signals in there," said Desjardins senior economist Jimmy Jean. "It bodes well for the third quarter."

Other figures indicated a pickup in the economy was already under way. Gross domestic product grew 0.6 percent in June, helped by a rise in non-conventional oil extraction as capacity returned following the fires.

(Additional reporting by John Tilak and Allison Martell in Toronto; Editing by Paul Simao and Lisa Von Ahn)


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