Q2 economic performance worst since financial crisis, StatsCan says

Real GDP fell 1.6%, federal agency blames Alberta wildfires for most of the contraction.

August 31, 2016   by CP Staff

OTTAWA — The Canadian economy shrivelled in the second quarter to its worst performance in seven years, Statistics Canada said.

The federal agency said real gross domestic product fell at an annualized rate of 1.6% in the three-month period, due in large part to the wildfires that destroyed parts of Fort McMurray, Alta. That’s the biggest quarterly decline since the second quarter of 2009 when Canada was in the midst of the global financial crisis.

The contraction compared with growth at an annual pace of 2.5% in the first quarter, which was revised from an initial reading of 2.4%.

Economists had expected a drop of 1.5% in the second quarter, according to Thomson Reuters.

“It wasn’t pretty, but it wasn’t expected to be,” Avery Shenfeld of CIBC Capital Markets said in a research note.

The drop in GDP came as exports of goods and services fell 4.5% in the quarter following a 1.9% increase in the first three months of the year. Exports of goods were down 5.5%, while exports of services grew 0.6%.

Already hurting from the drop in energy prices, the Alberta wildfires dealt a blow to the energy sector, forcing the evacuation of Fort McMurray and shutdown of several oilsands operations in the region.

Energy product exports fell 7.5%, with crude and bitumen exports declining 9.6% and refined petroleum products down a whopping 19.6%. Motor vehicles and parts also dropped 5.8 per cent due to lower exports of passenger cars and light trucks.

Exports of aircraft and other transportation equipment and parts were up 5.6%.

However, despite the pullback for the quarter as a whole, the economy ended the quarter with growth in June.

Statistics Canada said real GDP rose 0.6% that month, boosted in part to non-conventional oil extraction as production in the Alberta oilsands region started to resume. Economists had expected a gain of 0.4 per cent for the month, according to Thomson Reuters.

Mining, quarrying and oil and gas extraction climbed 3.6% in June, boosted by 12% gain in non-conventional oil extraction.

“The best news was that June GDP rebounded with a brighter than expected 0.6% gain, and less than half of that came from the rebound in mining/oil/gas, as manufacturing also had a healthy gain,” Shenfeld said.

“All told, a quarter we will like to forget, and for the next few months, a more supportive Q3 will help us do just that.”

The second-quarter result reported Wednesday was worse than forecast by the Bank of Canada in its July monetary policy report. The central bank had predicted that the economy would contract at an annual rate of 1% during the second quarter due to the damage caused by the wildfires.

But the Bank of Canada has also predicted that growth will pick up in the third quarter to an annual pace of 3.5% as oil production ramps up and rebuilding efforts begin in Fort McMurray. It also expects the federal government’s new Canada child benefit and a boost to infrastructure spending to lend a hand to the economy.

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