Canada's economy slows in 2nd quarter, shrinks in June

Fri Aug 30, 2013 1:04pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's economy shifted into lower gear in the second quarter and contracted in June for the first time in six months, hurt by a Quebec construction strike and flooding in Alberta.

Gross domestic product grew by 1.7 percent on an annualized basis in the quarter, Statistics Canada said on Friday. The growth was largely powered by consumer spending while business investment, inventories and exports dragged on growth.

The expansion slowed from a 2.2 percent clip in the first quarter, revised down from the 2.5 percent rate initially reported. Canada underperformed the United States, where growth accelerated to a 2.5 percent annual rate in the second quarter.

The lackluster performance was widely anticipated, with forecasters in a Reuters poll expecting growth of 1.5 percent and the Bank of Canada last month estimating a gloomier 1 percent gain.

But the details of the report may disappoint policy makers who have been hoping that corporate investment and stronger exports would take the baton from highly indebted consumers to do most of the heavy lifting in the economy.

"The big story here is that you see it is still very much a household driven economy right now," said Andrew Kelvin, senior fixed-income strategist at TD Securities.

"We see net exports were still a bit of a drag ... and business investment really hasn't taken off the way one might have hoped. ... From a longer-term perspective, I think we're very much on track for the recovery into the second half of the year," he said.

The Canadian dollar briefly touched a session low after the data to C$1.0559 to the U.S. dollar, before recovering to trade around C$1.0544. It closed on Thursday at C$1.0530.   Continued...

A Bay Street sign, a symbol of Canada's economic markets and where main financial institutions are located, is seen in Toronto, May 1, 2013. REUTERS/Mark Blinch