February 26, 2009 / 10:28 PM / 9 years ago

Canada's GDP report to be grim reading

OTTAWA (Reuters) - Canada’s economy suffered its biggest quarterly contraction since 1991 in the fourth quarter of last year, a report is expected to show on Monday, lengthening a string of bad economic news.

The median forecast in a Reuters poll of 16 analysts was for the economy to shrink 3.6 percent in the quarter on an annualized basis, following growth of 1.3 percent in the third quarter.

Canada’s finance minister and central bank governor have acknowledged the country is now in a recession, generally defined as two consecutive quarters of negative growth.

“You’re going to see negative numbers almost universally throughout this report, except perhaps for government spending,” said Eric Lascelles, chief economics and rates strategist at TD Securities.

TD is on the pessimistic end of the forecast range with its prediction of a 4.2 percent contraction in the quarter. Lascelles said the “shockingly poor figures” emerging from the United States recently prompted the estimate.

“We thought we’d stick our neck out and predict a truly truly dire outcome as opposed to just an awfully bad one,” he said.

In January, the Bank of Canada projected the economy would contract 2.3 percent annualized in the fourth quarter.

But since then Canadians have watched as grim economic data has emerged week after week, leading many economists to revise their forecasts downward.

In December, retailers had the biggest fall in sales in more than 17 years, factory sales plunged by a record 8 percent, and the country posted its first trade deficit in almost 33 years.

Analysts expect the report to reflect a fall in business investment and housing construction as the global financial crisis reached Canadian shores late last year.

Canada’s last recession was in 1990-91 and the last time the economy fell so sharply was in the first quarter of 1991 when GDP shrank 5.9 percent, according to Statscan data.

The central bank said on Monday that data so far has been consistent with its outlook of a return to growth in the third quarter. It expects GDP to decrease this year by 1.2 percent and increase in 2010 by 3.8 percent.

On Wednesday, Finance Minister Jim Flaherty said he was still comfortable with the economic forecasts made in last month’s budget, which predicted a contraction of 0.8 percent in 2009 based on forecasts from private sector economists .

Markets will be watching next Tuesday’s central bank interest rate announcement closely to see if the bank tweaks its forecasts.

The bank’s January forecast for a 4.8 percent economic contraction in the first quarter 2009 is more bearish than most.

Separately, Statistics Canada is expected to report a current account deficit for the first quarter on Friday. It would be the first current account deficit since the second quarter of 1999.

Reporting by Louise Egan; Editing by Peter Galloway

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