Canada economy shrinks 5.4 percent in first quarter

Mon Jun 1, 2009 4:26pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's economy shrank in the first quarter at the fastest pace since 1991, pushing the country into its sharpest two-quarter downturn on record, Statistics Canada data showed on Monday.

Real gross domestic product contracted 5.4 percent, annualized, in the first quarter of this year on sharply lower business investment and general weakness in manufacturing.

The decline followed a fourth-quarter contraction of 3.7 percent but was not as bad as the 6.6 percent drop expected by analysts.

Still, analysts were hard-pressed to put a positive spin on the report, which revealed the largest back-to-back quarterly decline since Statscan began collecting the data in 1961.

"It was a pretty bad fourth quarter, but a terrible first quarter. The only good news is that it will probably be the worst quarter in the cycle," said Don Drummond, chief economist at Toronto-Dominion Bank.

The Canadian dollar, which was trading around C$1.0825, or 92.38 U.S. cents before the data, weakened briefly just after the numbers were released. By 3:15 (1915 GMT) it had slipped to C$1.09, or 91.74 U.S. cents.

Prime Minister Stephen Harper said the figures were better than he had expected and were a reason to be optimistic.

"We do anticipate that this was the worst quarter, the first quarter of this year ... the worst is behind us, we will have better quarters going forward. That's our very strong sense at this point," he told a Toronto radio station.   Continued...