Canada GDP flat in July, raising recovery concerns

Wed Sep 30, 2009 2:02pm EDT
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OTTAWA (Reuters) - Canada's economy stagnated in July, the government said on Wednesday, raising doubts about whether gross domestic product would return to solid growth in the third quarter.

After a 0.1 percent increase in June, gross domestic product was flat in July, Statistics Canada said. Strength in manufacturing and wholesale sales was offset by a decline in the mining sector, showing that some parts of the economy were still struggling. Analysts had expected a 0.5 percent month-on-month rise in July.

The month-on-month increase in June came after 10 months of decline, and had raised hope that the economy was on track for solid gains in the July-September period after three quarters of contraction.

"Quite a bit of disappointment associated with today's Canadian GDP release for the month of July," said Stewart Hall, economist at HSBC Securities. "In a month that was widely expected to define the onset of economic recovery, the economy instead laid an egg.

"In the end, the best that can be said about the month of July is that it continued to reflect economic stabilization."

The manufacturing sector grew by 0.8 percent from June as output of motor vehicles and parts increased by 17 percent, reflecting the restart of some assembly lines.

Wholesale trade grew by 1.6 percent, with strong gains in the automotive products and building materials sectors.

The mining sector dropped by 1.5 percent from June -- the ninth consecutive monthly drop -- in part because of temporary closures and falling demand for iron and non-metallic minerals such as diamonds.

Even with the weaker-than-expected data, the Canadian dollar rose to a one-week high against the greenback as equity and commodity markets climbed on optimism that the global economy was recovering.   Continued...

<p>A Ford Motor Company employee assembles a new Ford Edge on the company's new flexible assembly line at the Ford assembly plant in Oakville, a Toronto suburb, October 16, 2006. REUTERS/J.P. Moczulski</p>