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Wednesday, June 30, 2010

Canada's economy stalls in April

June 30, 2010
By Jeremy Torobin
Globe and Mail Update

GDP unchanged as second quarter gets off to slow start

Canada's economy was unchanged in April after seven straight months of growth, reflecting the more sluggish expansion that policy makers have warned would start in the second quarter, as retail and manufacturing dropped.

The country's gross domestic product on a seasonally adjusted basis unexpectedly stayed at an annualized rate of about $1.2-trillion during the month, Statistics Canada said Wednesday. Retail trade fell 1.7 per cent, mostly erasing the previous month's 1.9-per-cent increase as people bought fewer cars and less clothing, and the factory sector had its first drop since last August, mainly due to a 1.2-per-cent decline in non-durable goods such as pharmaceuticals, printing and food products. Meanwhile, the mining and wholesale industries gained.

Most economists had anticipated a monthly gain of 0.2 per cent, after a reading of 0.6 per cent growth in March, as a stimulus measures and tax incentives that have fuelled domestic spending taper off and mortgages become more expensive. The Bank of Canada's latest forecast for the economy, which policy makers will update on July 20 with their next interest-rate decision, has the first quarter's eye-popping 6.1-per-cent pace of expansion giving way to a 3.8-per-cent annualized rate during the April-through-June period.

``The weaker-than-expected profile for GDP growth raises the chances that the BoC pauses its removal of monetary accommodation at the July meeting,'' said Jonathan Basile, vice-president of economics at Credit Suisse Securities in New York, adding that the result may cause Bank of Canada Governor Mark Carney to lower his second-quarter growth prediction. ``This was not our expectation going into today's report.''

Gross domestic product in April was up 3.3 per cent from a year earlier. At the same time, it is unmistakable that the recovery is settling in at a more sustainable pace. Inflation slowed considerably in May, Statistics Canada reported last week, and job growth was a more average 24,700 in May following an unprecedented gain of almost 109,000 in April.

After becoming the first Group of Seven central banker to tighten monetary policy a few weeks ago, Mr. Carney will probably raise his benchmark interest rate by 25 basis points for a second-straight time next month but then may pause if he doesn't do so in July, most economists say. The European debt crisis and the march to austerity in several economies, plus the stock-market volatility all of that is causing, will loom large in his decisions, Mr. Carney has repeatedly suggested.

``We expect growth resumed in both May and June,'' said Dawn Desjardins of RBC Economics. ``The external environment, however, has the potential to weigh on Canada's economic outlook if developments damage the global economy's momentum and hurt confidence.''

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