August GDP down, hits growth predictions

Fri Oct 30, 2009 3:26pm EDT
 
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By David Ljunggren

OTTAWA (Reuters) - Canada's gross domestic product shrank by 0.1 percent in August, casting doubt on whether the country climbed out of recession in the third quarter and making official growth projections all but impossible to reach.

Analysts polled by Reuters had expected the economy to grow 0.1 percent in August after a month of stagnation in July.

But lower oil and gas production nudged GDP lower in the month, and August showed a 4 percent year-on-year decline in GDP, a broad measure of goods and services in the economy.

"Two months into the quarter and the economy is largely standing still. Worse, the economy is headed in the wrong direction," HSBC Securities economist Stewart Hall said in a note that expressed "palpable disappointment" in the data.

"It would seem that Canada will have to wait until the fourth quarter for the economy to transition from economic stabilization to economic recovery."

The August figure means that a Bank of Canada forecast for annualized growth of 2.0 percent in the third quarter looks unrealistic and should remove any lingering talk of an early interest rate hike to rein in inflation.

Statistics Canada officials said September GDP would have to grow by an almost unprecedented 2.0 percent to meet the central bank's forecast and by 0.6 percent to record any growth at all in the third quarter.

Scotia Capital analysts Derek Holt and Karen Cordes said Canada was paying the price for the lagging recovery in the United States, Canada's largest trading partner.   Continued...

 
<p>An EnCana pump jack pumps oil out of the ground near Rockyford, Alberta, June 30, 2009. REUTERS/Todd Korol</p>