Canada: Economy shrinks for the first time in two years on weak exports
August 31, 2011
In the second quarter, GDP declined 0.4% in seasonally adjusted annualized terms over the previous quarter. The result contrasted the first quarter's 3.6% increase and market expectations, which had seen GDP expanding 0.1%. In fact, it was the first contraction since Q2 2009, mainly due to widening trade gap. Domestic demand held firm as business fixed investment remained strong and grew 9.7% in the second quarter (Q1: +10.8% qoq saar). Private consumption expanded 1.6%, contrasting the 0.1% decline in the first quarter. The external sector proved weak in the second quarter through a combination of the faltering global recovery, the Japanese disasters and a strong Canadian dollar. Exports contracted 8.3% in the second quarter, contrasting the 7.7% expansion in the first. Simultaneously, imports added 10.0% in the second quarter (Q1: +9.5% saar). As a result, the contribution from net exports to overall economic growth deteriorated from minus 1.3 percentage points in the first quarter to minus 9.1 percentage points in the second. Meanwhile, GDP increased 0.2% in June over the previous month in seasonally adjusted terms, contrasting May's 0.3% contraction and coming in slightly below market expectations of a 0.3% rise. On an annual basis, GDP grew 2.0%, unchanged from the May reading. The annual average growth rate fell from 3.4% in May to 3.2% in June. The Central Bank estimates the economy to grow 2.8% in 2011, before decelerating to a 2.6% expansion in 2012.