Canada 1st quarter GDP to herald record downturn

Thu May 28, 2009 12:36pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canada experienced the biggest economic contraction on record in the first quarter, figures next week are expected to show, pushing the country into its sharpest downturn in half a century.

Gross domestic product likely shrank 6.6 percent, annualized, in the January to March period, according to the median forecast by analysts in a Reuters poll released on Thursday.

That would be the worst performance since record-keeping began in 1961 and would follow a 3.4 percent contraction in the final quarter of last year.

"This will be the worst two-quarter start to a recession that we have seen in the post-war period," said Avery Shenfeld, chief economist at CIBC World Markets.

Statistics Canada will release its report on quarterly GDP at 8:30 a.m. (1230 GMT) on Monday, June 1, along with figures on GDP by industry for March.

The Bank of Canada, which has already cut its benchmark interest rate to 0.25 percent, is highly unlikely to feel pressured into further action to jump-start the economy even if the GDP data falls below market consensus. The bank in April projected an even sharper 7.3 percent first-quarter decline and at the time saw no need to go as far as adopting measures used by the U.S. Federal Reserve such as printing money to buy assets on the market.

It is expected to uphold that view in an announcement on June 4.

Crucial in the Statscan report will be details on how much of the downturn was caused by softening consumer demand and how much by dwindling inventories, which could signal a possible rebound in production in coming months as businesses seek to replenish stock.   Continued...