Decline in Canada April economic growth puts second quarter growth at risk

Tue Jun 30, 2015 10:41am EDT
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By Leah Schnurr

OTTAWA (Reuters) - The Canadian economy unexpectedly shrank in April, hurt by weakness in the mining and oil and gas industries, a setback that bodes poorly for a second-quarter pick-up in growth that the Bank of Canada is looking for.

Gross domestic product fell 0.1 percent from March, Statistics Canada said on Tuesday, short of analysts' expectations for a gain of 0.1 percent. It was the fourth consecutive monthly decrease.

It marked a disappointing start to the quarter after the economy contracted in the first quarter as it was stung by cheaper oil, a major Canadian export.

While economists cautioned that it is still early, the figures raised the risk that the second quarter could contract as well, putting Canada in a recession for the first time since the 2008-2009 global credit crisis. The Canadian dollar CAD=D4 hit a three-week low against the greenback immediately following the data.

The report also increased the possibility that the central bank could cut rates again before year's end, analysts said, though markets were pricing a 70 percent likelihood that rates will remain on hold at its next scheduled policy announcement in July. BOCWATCH

"If you get two quarters of contracting growth, it does get them a lot closer to thinking about maybe providing a little more stimulus," said David Tulk, chief Canada macro strategist at TD Securities.

The central bank's last forecast put second-quarter growth at 1.8 percent, though it will update its projections at its July 15 meeting.

The economy would need to growth by 0.3 percent in both May and June for the second quarter to be in positive territory, Tulk said. Wildfires in northeastern Alberta that disrupted oil sands production in late May could hold activity back, he added.   Continued...

A construction worker works on a new house being built in a suburb located north of Toronto in Vaughan, Canada, June 29, 2015. REUTERS/Mark Blinch