Bloomberg News

Canada’s Economy Shrank 0.3% in May on Decline in Mining

July 29, 2011

(Updates with bond trading in seventh paragraph.)

July 29 (Bloomberg) -- Canada’s gross domestic product fell in May by the most in two years due to temporary disruptions in the mining and oil and gas sector, government data showed.

Output fell 0.3 percent in May to C$1.26 trillion ($1.32 trillion) on a seasonally adjusted basis, after being little changed in April and gaining 0.3 percent in March, Statistics Canada said today in Ottawa. Economists in a Bloomberg survey forecast the economy would grow 0.1 percent, based on the median of 24 responses.

The Bank of Canada said July 20 the economy’s growth probably slowed to 1.5 percent in the second quarter of this year, its slowest pace since the country emerged from recession in 2009, because of “supply disruptions” related to the earthquake and tsunami in Japan, slowing government spending and the impact of higher food and energy prices. Governor Mark Carney has kept the central bank’s benchmark policy rate at 1 percent since September.

“The weakness is slightly over-stated” in May because of temporary factors, said David Tulk, chief Canada macro strategist at TD Securities, though the numbers highlight how expansion in the second quarter has been a “lost cause.”

Tulk said today’s data suggest the central bank’s second- quarter forecast may be too high.

U.S. Weakness

The Commerce Department said separately today the U.S. economy grew at a less-than-previously estimated 0.4 percent pace in the first quarter, and expanded at a 1.3 percent annual rate in the second quarter. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase in the three months through June.

Bonds rose, with yield on the 2-year Canadian note dropping nine basis points to 1.39 percent, the lowest since July 18. The Canadian currency weakened 0.8 percent to 95.68 cents per U.S. dollar at 10:30 a.m. in Toronto, compared with 94.93 yesterday.

The economy grew 2.2 percent in May from the same month a year earlier, Statistics Canada said today, the smallest yearly gain since February 2010. Output increased 2.8 percent in April from the same month a year earlier.

Output in mining, oil and gas extraction dropped 5.3 percent in May following two monthly gains due to wildfires in northern Alberta and maintenance shutdowns at oil fields, the report said. Production at copper, nickel, lead and zinc mines fell 9.6 percent after a 6.1 percent increase in April.

Manufacturing Declines

Manufacturing declined 0.4 percent as output of non-durable goods slumped and oil refineries shut down for maintenance, Statistics Canada said. Construction slipped 0.3 percent in May.

Wholesale trade increased 1.0 percent in May while retailing rose 0.2 percent. Public-sector output rose 0.5 percent due to the country’s census, the report said, while the finance and insurance industries increased 0.1 percent.

A separate Statistics Canada report showed that factory prices and raw materials costs fell faster than economists predicted last month.

The industrial product price index fell 0.3 percent in June from May, led by petroleum and coal products as gasoline prices dropped 4.3 percent, Statistics Canada said. The median estimate in a Bloomberg survey of 15 economists was for a 0.1 percent decline.

The raw-materials price index fell 2.2 percent in June, the report said, compared with economist predictions for a 2 percent decrease, according to the median estimate in a Bloomberg survey with 13 responses. It was the second straight monthly drop in the index after seven consecutive increases.

Over the 12 months ending in June, industrial prices rose 5.2 percent while raw-materials costs rose 23.0 percent, suggesting factory profit margins have been squeezed.

--With assistance from Theophilos Argitis in Toronto. Editors: Paul Badertscher, Gail DeGeorge

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net


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