Canada economy shrinks but recovery in view

Mon Aug 31, 2009 11:04am EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's economy took a baby step toward recovery in June, eking out marginal growth even though it shrank overall in the second quarter to mark the sharpest nine-month downturn in half a century.

Statistics Canada said on Monday that gross domestic product contracted at an annual rate of 3.4 percent in the second quarter, slightly worse than expected but still better than in the previous two quarters, due mainly to a rebound in consumer spending and housing construction.

Real annualized GDP contracted 6.1 percent in the first quarter, revised from 5.4 percent, the worst performance since Statscan began keeping records in 1961. GDP contracted 3.7 percent in the fourth quarter of last year.

But in June, GDP grew 0.1 percent after 10 months of decline, confirming the recession has bottomed out and putting the economy on track for solid third-quarter gains.

"These numbers were a little disappointing overall," said Eric Lascelles, chief economics and rates strategist at TD Securities.

The silver lining, he said, is that domestic demand started to firm.

"Basically, suppliers have not been able to scramble to catch up with the resurgence in demand and I think you are going to begin to see positive GDP numbers relatively shortly," he said.

The consensus of analysts surveyed by Reuters was for a second-quarter contraction of 3.1 percent and growth of 0.3 percent in June compared with May.   Continued...

<p>A worker prepares to install a battery into a Ford Flex on the assembly line at the company's Oakville Plant in this June 3, 2008 file photo. REUTERS/Fred Thornhill</p>