A declining energy sector was the driver behind the fourth consecutive monthly contraction of Canadian real gross domestic product (GDP) in April, according to Statistics Canada
GDP shrank 0.1%, falling below expectations of analysts’ expectations of slight growth in the month. This follows a weak first quarter, which saw GDP shrink by a revised figure of 1.0% on an annual basis.
“Following a downwardly revised first quarter [from 0.6% initially reported], the tracking for the second quarter is not pretty,” said Diana Petramala, economist at TD Economics, who said the latest figures increase the risk of a technical recession in Canada.
The decline was due to a 0.8% drop in goods production, led by mining, quarrying and oil and gas extraction, which declined 2.6%. This was the fifth consecutive monthly drop in this sector, driven by low oil prices. The outlook for the sector is not all bleak, however, according to Petramala.
“Some of the drop in output [in mining, quarrying and oil and gas extraction] reflects temporary plant shutdowns for retooling and is unlikely to be repeated in the months ahead,” she said.
Manufacturing and construction also dropped in April, with declines of 0.2% and 0.1%, respectively.
Service-producing industries saw growth for the third month in a row, led by a 1.6% increase in wholesale trade. The retail sector saw a slight dip, falling 0.2%.
“Thus far, we are yet to see the positives that should be offsetting weakness in the energy sector,” said Andrew Grantham, economist at CIBC World Market Economics.
“As indicated by the sector-specific data released in recent weeks, lower gasoline prices are doing little thus far to spur retail spending, while the weaker loonie is doing little to boost manufacturing.”
Grantham said the Bank of Canada’s (BoC) forecast for a “front-loaded” economic decline in 2015 looks less likely, given April’s poor results.
“The slight fall in GDP in April, coupled with the weak hand-off from the prior quarter, leaves us facing the probability that Q2 GDP could also be negative,” Grantham said.
“That will have markets pricing in a greater probability of a BoC rate cut, which will weigh on the loonie and support fixed income today.”
Petramala said the latest data shows BoC’s forecast of 1.8% growth in Q2 is unrealistic and agrees it increases the possibility of another cut to the overnight rate.
The Canadian dollar fell almost three-quarters of a cent in reaction to these latest figures. As of press time, it was trading at 80.15 cents U.S.
