June 17, 2010 / 5:37 PM / 7 years ago

Data suggests "pothole" recovery ahead

4 Min Read

TORONTO (Reuters) - The value of Canadian wholesale trade dipped unexpectedly in April, suggesting a cooler tempo of economic growth, while TD Economics said the domestic economy was set for a bumpy, "pothole" recovery.

Trade dropped by 0.3 percent from March, Statistics Canada data indicated on Thursday, against market expectations for a 0.4 percent advance. Statscan revised March's increase down to 1.2 percent from an initial 1.4 percent.

"The data is indicating some slowing as you go into April GDP, but the strong momentum at the end of the first quarter still bodes well for growth to remain strong in the second quarter," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

RBC predicts the pace of annualized GDP growth will moderate to 3.4 percent, about half the 6.1 percent recorded in the first quarter, he added.

The Canadian dollar turned lower in response to the wholesale trade data, but remained well within recent ranges, and as market players digested other tepid U.S. economic news that added to concerns about the pace of the global economic recovery.

TD Economics said in a quarterly forecast that the overall pace of economic expansion will be tempered in the second half of the year and into 2011, while sovereign debt worries will contribute to volatility in financial markets in the meantime.

"The recent strength of Canada's economy has helped to reinforce the view that Canada's recovery is for real. Still, bumps lay ahead as households and governments shift their attention to addressing their recent largesse," said Craig Alexander, chief economist at TD Bank Financial.

"Canada's economy has proven to be resilient in the first half of 2010 but potholes remain along the road to economic recovery," the bank cautioned in its forecast.

The Canadian economy is seen growing an annualized average 3.6 percent in 2010 and 2.5 percent in 2011, TD said in a revised forecast. In March, it pegged 2010 growth at 3.1 percent and 2.9 percent next year.

Globally, TD said it sees a two-speed recovery with emerging economies, such as China, India and Brazil, growing at an above-trend pace, while European countries face poor growth prospects at the hands of "unavoidable fiscal retrenchment."

These expectations echo those of Bank of Canada Governor Mark Carney, who described the global economic recovery on Wednesday as a "policy-led, multi-speed recovery" while cautioning investors not to take another interest rate hike for granted.

Lower Sales of Autos and Parts

The Statistics Canada wholesale data showed that lower sales of motor vehicles and parts were largely behind the monthly decline.

In volume terms, wholesale trade was up by 0.4 percent, reflecting the fact that wholesalers took advantage of the appreciation of the Canadian dollar versus the U.S. dollar to import more cheaply.

Four of the seven sectors reported drops in April. The motor vehicles and parts group fell by 2.5 percent, pulled down by a 3.3 percent drop in wholesale sales of motor vehicles.

Inventories rose by 0.6 percent following a 0.2 percent decrease in March, bringing the inventory to sales ratio to 1.17 in April from a revised 1.16 in March. This is lower than levels observed before the economic crisis hit.

($1=$1.03 Canadian)

Additional reporting by David Ljunggren in Ottawa; editing by Rob Wilson

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