June 30, 2016 / 12:57 PM / in a year

Canada second quarter set to disappoint after economy grows 0.1 percent in April

OTTAWA (Reuters) - The Canadian economy grew by just 0.1 percent in April from March, Statistics Canada said on Thursday, paving the way for a sickly second quarter on the back of the devastation caused by major wildfires in Alberta.

Bombardier employees install parts on a Global 6000 aircraft at the manufacturing facilities in Toronto in this May 29, 2012 file photo. REUTERS/ Mike Cassese

The advance - the first in three months - matched the forecast in a Reuters poll of analysts.

The Bank of Canada, citing the damage the fires did to the energy sector, said on June 15 that growth was likely to be flat or slightly negative in the second quarter before an outsized recovery took hold in the third quarter.

That forecast could now be in doubt, given the economic fallout from Britain’s stunning vote last week to leave the European Union.

Derek Holt, head of capital markets economics at Scotiabank, said the April data were the last positive numbers before the effects of the fires and Brexit kick in.

“The second quarter in my opinion is tracking poorer than perhaps the Bank of Canada is guiding before we even start to get the worst of the wildfires effects coming in through the rest of the quarter’s data,” he said.

Manufacturing output in April rose by 0.4 percent after two consecutive monthly decreases, pushed higher by growth in non-durable goods manufacturing.

The utilities and the public sectors also posted increases but they were largely offset by a 7.3 percent decline in the output of oil sands plants. This was largely the result of maintenance shutdowns at upgrader facilities.

Underlining the effect of the fires that forced the evacuation in May of Fort McMurray, Alberta, Statscan said separately that producer prices that month increased by their most in over a year as the blaze caused supply disruptions that pushed up the cost of energy and petroleum products.

The Bank of Canada says the damage from the inferno will take 1 to 1.25 percentage points off second quarter growth but has yet to forecast the consequences of Brexit.

The central bank, which cut rates twice last year to counter the effects of a slump in crude prices, will provided updated economic forecasts at its next interest rate decision on July 13 and is widely expected to leave rates unchanged.

A Reuters poll of primary dealers after Brexit showed they had pushed back their expectations of a rate rise to the first quarter of 2018 from the last quarter of 2017.

With additional reporting by Fergal Smith in Toronto; Editing by Frances Kerry

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