Canada GDP Posts Surprise 0.2% Decline In February
First Published Monday, 30th April 2012 02:17 pm - © 2012 Dow Jones
(Updates throughout with details and economist reaction.)
--Temporary shutdown of mines, oil production weighs on results
--Manufacturing, utilities and retail trade also post declines
--Analysts suggest this dampens momentum for early BOC rate hike
By Paul Vieira
Of Dow Jones NEWSWIRES
OTTAWA -(Dow Jones)- The Canadian economy unexpectedly shrank in February - to the shock of most traders and economists - dragged down by temporary shutdowns in oil and metal production, Statistics Canada said Monday.
Monthly gross domestic product declined 0.2%, whereas the expectation among market participants was for the Canadian economy to expand 0.2%, according to economists at Royal Bank of Canada. The result followed a 0.1% GDP advance in January.
"The Canadian economy disappointed in a big way," said Douglas Porter, deputy chief economist at BMO Capital Markets, adding that year-over-year GDP grew a feeble 1.6% pace.
Economists say the surprise result will likely dampen expectations of a Bank of Canada rate hike some time in 2012, as growth may not be nearly as robust as the central bank initially anticipated just two weeks ago. In public appearances last week, Bank of Canada Governor Mark Carney reiterated there may be a need to raise the central bank's key policy rate because the output gap had narrowed and underlying inflation was firm.
"The weaker momentum reduces the likelihood of the Bank of Canada hiking rates early," said Charles St-Arnaud, foreign-exchange strategist at Nomura Securities in New York.
In its most recent economic outlook, the Bank projected Canadian GDP would expand at an annualized rate of 2.5% in the first three months of 2012 - a forecast most economists now say looks too optimistic. In 2011, Canada's GDP advanced 2.6%, a tad better than the data agency's estimate of 2.5%.
February's surprise decline was led by a 1.6% fall in the mining and oil-and-gas extraction category.
Mining declined 7%, and the data agency attributed the result to temporary shutdowns of potash mines in Saskatchewan on weak global demand, and nickel properties in Ontario for safety reasons.
Oil-and-gas extraction, concentrated in western Canada, decreased 0.9% in February, on "unplanned" maintenance work at crude petroleum sites in Alberta. Natural gas production was also down.
Porter said the data reinforce a belief that the Canadian economy remains incredibly fragile outside of the commodity-based industries. "When we do get hit with these temporary shutdowns, it is enough to hit the overall economy into the red."
Other sectors among good-producing industries also posted weak February results. Manufacturing declined 1.2% after recording five straight monthly gains, on reduced production of food, plastics and transportation equipment. Utilities decreased 1.9%, as warmer-than-usual weather led to lower demand for electricity.
Construction was a bright spot in the month, rising 0.5% on increased activity in the residential and non-residential sectors, and engineering and repair work.
As for the Canadian services sector, wholesale trade was tops with a 1.5% advance, due to increased sales in building materials, motor vehicles and parts, and machinery and equipment. But retail trade decreased 0.4%, as activity at new-car dealerships tailed off after a robust January. Further, hotel and restaurant sales - a sign of households' appetite for discretionary spending - dropped 0.5% month over month.
Meanwhile, transportation and warehousing services declined 0.9%, while the finance and insurance sector rose 0.5%.
Overall output in services-producing industries rose 0.1% but declined 1% in goods-producing industries.
Some economists, though, indicate there's a chance GDP rebounds strongly in March, as labor data for the month indicated employment in the month surged 82,300. Also, global policymakers took steps to contain Europe's sovereign-debt crisis, and the February decline was due to temporary factors.
-By Paul Vieira, Dow Jones Newswires; 613-237-0669; email@example.com