June 30, 2015 / 1:00 PM / 4 years ago

Decline in Canada April economic growth puts second quarter growth at risk

OTTAWA (Reuters) - The Canadian economy unexpectedly shrank in April, hurt by weakness in the mining and oil and gas industries, a setback that bodes poorly for a second-quarter pick-up in growth that the Bank of Canada is looking for.

A construction worker works on a new house being built in a suburb located north of Toronto in Vaughan, Canada, June 29, 2015. REUTERS/Mark Blinch

Gross domestic product fell 0.1 percent from March, Statistics Canada said on Tuesday, short of analysts’ expectations for a gain of 0.1 percent. It was the fourth consecutive monthly decrease.

It marked a disappointing start to the quarter after the economy contracted in the first quarter as it was stung by cheaper oil, a major Canadian export.

While economists cautioned that it is still early, the figures raised the risk that the second quarter could contract as well, putting Canada in a recession for the first time since the 2008-2009 global credit crisis. The Canadian dollar CAD=D4 hit a three-week low against the greenback immediately following the data.

The report also increased the possibility that the central bank could cut rates again before year’s end, analysts said, though markets were pricing a 70 percent likelihood that rates will remain on hold at its next scheduled policy announcement in July. BOCWATCH

“If you get two quarters of contracting growth, it does get them a lot closer to thinking about maybe providing a little more stimulus,” said David Tulk, chief Canada macro strategist at TD Securities.

The central bank’s last forecast put second-quarter growth at 1.8 percent, though it will update its projections at its July 15 meeting.

The economy would need to growth by 0.3 percent in both May and June for the second quarter to be in positive territory, Tulk said. Wildfires in northeastern Alberta that disrupted oil sands production in late May could hold activity back, he added.

April’s figures showed the energy sector remained weak. The central bank had said it expected the oil shock to be front-loaded to the beginning of 2015.

“The difference is it seems to be a bit bigger and maybe a little bit more prolonged than they had anticipated, so they might need more of that ‘insurance’,” said Tulk.

Oil and gas extraction fell 3.4 percent, mainly due to a decline in the non-conventional oil extraction sector, which saw maintenance shutdowns and production difficulties in April.

Mining and quarrying also declined 3.4 percent. A 1.6 percent gain in wholesale trade helped offset some of the weakness elsewhere. Retail trade fell 0.2 percent.

Editing by Jeffrey Benkoe and Chizu Nomiyama

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