Economy Stalls in April

Posted on 02. Jul, 2010 by in News

Jun 30, 2010 Sharon Singleton QMI Agency torontosun.com

Canada’s economy stalled in April after seven months of growth as consumers tightened their purse strings and manufacturing and utilities declined, government figures showed.

Gross Domestic Product was unchanged in April from the previous month, Statistics Canada said. Economists had been expecting a gain of 0.2%.

A drop in retail sales was one of the biggest drags, posting a decline of 1.7% in April after a 1.9% gain in March, StatsCan said. The sales of new cars, clothing and accessories all decreased in the month.

Canada’s economy is slowing down from the fastest growth in a decade in the first quarter. However, the country is still expected to be the best performing among the G7 industrialized nations this year, and economists said Wednesday’s data doesn’t raise too much cause for alarm.

“After a rip-roaring start to the recovery, Canada’s economy has clearly downshifted,” said Benjamin Reitzes, a BMO Capital Markets economist, in a note. “While flat April GDP is a setback, the details of the report weren’t as troubling.”

The loonie fell after the release of the data, which some said decreased the likelihood for a further gain in interest rates in the near future. The Canadian dollar touched $1.0612 to the U.S. dollar, or 94.23 US cents, at mid-morning, its lowest since June 7.

Manufacturing industries fell 0.9% in the first drop since August of last year, with 11 of 21 groups contracting, StatsCan said.

Wednesday’s GDP report showed oil and gas extraction and mining continued to expand at a 0.5% pace in April, while wholesale trade advanced 0.6%.

Construction was up 0.1% in April. Non-residential building construction and engineering and repair works increased, while residential construction dropped.

Despite, the weaker-than-expected reading, most economists expect second-quarter growth to come in line with previous forecasts.

“We expect the recovery in Canada to remain on track,” said Dina Cover, TD Bank Financial Group economist, in a note. “However, there will be several bumps along the way and the pace of growth going forward will not likely repeat the robust performance seen over the past two quarters.”

One of the major bumps may prove to be the performance of the U.S. economy. Recent data has shown a slow-down in the recovery of Canada’s biggest trading partner, with the battered housing market failing to pick up and corporations still not hiring despite improved profits.

“The debt crisis in Europe has led to greater risk aversion and concerns regarding global growth, which could pose additional challenges for Canada’s external sector,” Cover said.

Domestically, concerns about rising interest rates, coupled with record household debt levels, may continue to put the brakes on spending, economists say.

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