Data suggests "pothole" recovery ahead

Thu Jun 17, 2010 1:33pm EDT
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By Ka Yan Ng

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.   Continued...