Canadian economy weak in 4th quarter, shrinks in Dec

Fri Mar 1, 2013 11:28am EST
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By Louise Egan

OTTAWA (Reuters) - Canada's economy sputtered in the final quarter of 2012 as businesses sharply cut back inventories, resulting in the weakest six months since the 2008-09 recession, Statistics Canada data showed on Friday.

The report also showed the economy shrank in December, and the slowdown will likely add pressure on the Bank of Canada to keep stimulus in place for longer and weigh on the Conservative government as it prepares its next budget.

Gross domestic product expanded by 0.6 percent, annualized, Statistics Canada said, as shrinking stockpiles and a battered manufacturing sector offset strong consumer spending and increased business investment. The growth rate was in line with recently reduced forecasts.

"The key thing to note is a general theme of softness in all sectors of the economy, but it is encouraging to note that at least we did see a bounce back in business investment following the decline we saw in the third quarter," said Mazen Issa, a macro strategist at TD Securities.

"Heading forward, the Canadian economy is going to have a bit of a tough time trying to grow above its trend rate. That's largely dependent on how the U.S. performs this year."

It was the worst quarterly performance since the second quarter of 2011, when the economy contracted 0.8 percent in the aftermath of the Japanese earthquake and tsunami.

Excluding that extraordinary effect, the last time the economy fared worse was at the end of the recession in the second quarter of 2009, when it shrank 3.6 percent.

Statscan revised third-quarter growth to 0.7 percent from 0.6 percent previously.   Continued...

Buildings are seen in the financial district in Toronto, January 28, 2013. REUTERS/Mark Blinch