Canada's economy turns sluggish as rate decision looms

Fri May 30, 2014 11:20am EDT
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By Louise Egan

OTTAWA, May 30, (Reuters) - Canada's economy geared down at the start of the year, and not only because exports took a hit from bad weather in the United States, as business investment and imports also showed unexpected weakness.

Growth slowed to 1.2 percent, annualized, in the first quarter from 2.7 percent in the final quarter of last year, according to Statistics Canada data released on Friday. The market forecast was for 1.8 percent economic growth.

The report gives the Bank of Canada leeway to hold the line on interest rates even though inflation jumped back up to its 2 percent target in April for the first time in two years.

Economists have laid some of the blame for the sluggish growth on an unusually harsh North American winter. The U.S. economy contracted by 1 percent in the first quarter.

In Canada an ice storm caused the economy to shrink in December, and bad weather may have been behind weaker demand for Canadian exports from the United States.

But weather doesn't explain a 7.2 percent decline in imports or a drop in business investment, said Jimmy Jean, an economist with Desjardins Capital Markets in Montreal.

"There's not a whole lot of silver lining in this report," he said. "It's way beyond a simple weather story. There's a sign of malaise in this report that wasn't expected."

Compared with the previous quarter, GDP grew 0.3 percent in the three-month period. In March it expanded by 0.1 percent, as expected.   Continued...

Residential and commercial buildings are pictured in Vancouver, British Columbia June 20, 2011. REUTERS/Jason Lee