UPDATE 3-Canada economy has biggest quarterly drop in 7 yrs, Q3 rebound seen

Wed Aug 31, 2016 1:42pm EDT
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(New throughout, adds comment from economist, updates Canadian dollar)

By Leah Schnurr

OTTAWA Aug 31 (Reuters) - Canada's economy shrank in the second quarter, its worst showing in seven years, hurt by a drop in exports and a disruption to oil production caused by wildfires in Alberta, though growth was seen as likely to rebound later this year.

While the quarterly drop slightly exceeded market forecasts, economists were encouraged by other figures released on Wednesday that showed the economy resumed growing in June.

They said the June pickup supports the Bank of Canada's view that growth will recover in the third quarter. The central bank is not expected to move off the sidelines at its meeting next week.

"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," said Sal Guatieri, senior economist at BMO Capital Markets.

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

That exceeded 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 quarterly GDP print for the second quarter wasn't pretty, but no one was expecting it to be," wrote Andrew Grantham, senior economist at CIBC.   Continued...