Bloomberg News

Canada July Gross Domestic Product Rises 0.3% on Factories

September 30, 2011

(Updates with economist’s comment in fourth paragraph, currency trading in fifth paragraph.)

Sept. 30 (Bloomberg) -- Canada’s gross domestic product rose for a second month in July on gains in manufacturing and wholesaling, enough to avert a recession in the third quarter, economists said.

Output rose 0.3 percent to C$1.26 trillion ($1.21 trillion) on a seasonally adjusted basis, Statistics Canada said today in Ottawa, matching the median estimate in a Bloomberg survey with 23 responses.

The economy shrank in the second quarter as a high Canadian dollar and manufacturing shutdowns reduced exports, raising the prospect of the second recession since 2009 if output declined again on further global weakness. Growth may stumble in the next few quarters because of weak U.S. demand and Europe’s debt crisis, economists said.

“Canada is better placed than many countries but it’s still a risky environment,” said Leslie Preston, an economist at Toronto-Dominion Bank. “If the U.S. falls into a recession Canada is likely to follow.”

Canada’s dollar depreciated for a third day versus its U.S. counterpart, falling to the lowest in more than a year, on concern a slowdown in the global economy will crimp exports. The currency fell 0.4 percent to C$1.0398 per U.S. dollar at 10:39 a.m. in Toronto, compared with C$1.0359 yesterday. Earlier it touched C$1.0467, the weakest level since Sept. 8, 2010. One Canadian dollar buys 96.18 U.S. cents.

Economists surveyed by Bloomberg last month forecast a third-quarter annualized growth rate of 2 percent. The quarterly growth rate would still be 1.3 percent even if output stalls in August and September according to Michael Gregory, senior economist at Bank of Montreal in Toronto.

Still, exports make up a third of Canada’s economy, and a Bloomberg poll of global investors taken Sept. 26 had 37 percent saying that a debt crisis in the euro zone will lead to a global economic meltdown within the next year.

“There is a little bit of momentum here” in Canada, Gregory said in a telephone interview. “Those next couple of quarters coming down the pipe are the ones where the recession risks are getting a little bit higher.”

The International Monetary Fund cut Canada’s economic growth forecast Sept. 20, citing weaker U.S. demand and slower government spending, and said Finance Minister Jim Flaherty can afford to offer new stimulus if needed. The 2011 growth forecast was reduced to 2.1 percent from a June prediction of 2.9 percent, and the expansion will slow further to 1.9 percent next year, the IMF said.

Manufacturing rose 1.4 percent in July, the first increase in four months, with gains in automobiles, machinery and chemicals, Statistics Canada said. Wholesaling rose 1.5 percent, and the production of utilities rose at the same rate as warm weather boosted demand for electricity. Transportation and warehousing rose 1.8 percent after labor disruptions at the national postal service ended.

The gains in goods production are a reversal from the second quarter when the economy shrank at a 0.4 percent annualized pace.

Gross domestic product grew 2.3 percent in July from the same month a year earlier, Statistics Canada said today.

The July report also showed some signs of weakness. Construction fell 0.3 percent during the month, and mining and oil and gas production declined by the same amount.

Retailing fell 0.7 percent on fewer sales of automobiles. Excluding autos, output of retailers was little changed, Statistics Canada said. The output of real estate agents and brokers fell 1.1 percent.

Household debt as a share of disposable income rose to a record 150.8 percent at the end of June from 149.5 percent the previous quarter, Statistics Canada said Sept. 13.

“There are some signs of the consumers engaging in more cautious behavior, which I think is a good thing at this time,” Canadian Imperial Bank of Commerce Chief Executive Officer Gerald McCaughey said at a Sept. 21 investor conference.

--With assistance Ilan Kolet in Ottawa. Editors: Gail DeGeorge, Scott Lanman

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

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


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