Economy rebounds in April on autos

Mon Jun 30, 2008 2:10pm EDT
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By Louise Egan

OTTAWA (Reuters) - A rebound by the manufacturing sector helped Canada's economy grow by a stronger-than-expected 0.4 percent in April after two months of contraction, but economists see growth remaining weak for the rest of the year.

Statistics Canada's report on April gross domestic product showed growth beat market expectations of a 0.3 percent climb following declines in March and February of 0.2 percent and 0.3 percent, respectively.

"We do not expect this to be a repeat performance in coming months given the heavy contribution from temporary factors, and our view that the worst still lies ahead of us for both the U.S. and Canadian economies," said Derek Holt, economist at Scotia Capital.

"In particular, downsides facing U.S. and Canadian auto production may well make this month's surge a one-shot wonder," he said.

The economy shrank in the first quarter for the first time since the second quarter of 2003, by an annualized 0.3 percent.

Manufacturing, battered by the U.S. economic slowdown, expanded 1.9 percent in April, not enough to regain the 2.4 percent loss in the previous month.

The strength in manufacturing was widespread but motor vehicle production contributed the most with a 7 percent jump versus a 12.8 percent drop in March as producers found alternative parts suppliers to make up for a strike at a major U.S. plant.

Statscan noted that auto production has been very volatile in recent months. But automakers had already partly recovered from the effects of the strike, which lasted until the end of May, meaning that the sector would probably undergo less of a surge in May and therefore add less to GDP that month, economists said.   Continued...