Canada's economy shrinks for first time in 2 years

31/08/2011

Canada's economy recorded its first quarterly decline in two years, after the real gross domestic product fell 0.1 per cent in the three-month period ending June 30, according to Statistics Canada.

Finance Minister Jim Flaherty said Wednesday that the decline in second-quarter growth was not a surprise considering the current uncertainty in the global economy.
"As we all know global economic growth has been softer in recent months and this impacted Canada as part of the global economy," Flaherty said in Toronto.

These conditions made it harder for Canadians to sell their goods and services to customers abroad, with StatsCan reporting a drop in export volumes of 2.1 per cent.

Energy exports, in particular, were hard hit in the second quarter, falling 6.7 per cent and the export of goods was down 2.7 per cent.

Wildfires in northern Alberta and maintenance shutdowns hampered domestic oil production in the second quarter, which also contributed to the decline in energy exports.

While the government was pointing to global forces for the drop, the Liberals' interim leader put the blame on Flaherty and the Conservatives.

"The focus for the country, the focus for this government has to be jobs and not cuts," said Bob Rae, adding that the government has been too naïve.

Rae also said that the government should hold plans to cut $4 billion from the federal yearly budget. He stressed that new infrastructure spending and stimulus should be on the table to battle against recessionary forces.

With fewer goods being exported, Canadian businesses saw more stock sitting in storage, which StatsCan said amounted to business inventories increasing $19 billion across the quarter.

BNN's Marty Cej said a build-up of inventory is an issue for the economy, as it makes businesses more reluctant to spend money, whether on staff or saleable goods.

"If that stuff is still on the shelves, that means that companies won't be spending more to bring more goods in and put on their own shelves," Cej said.

"It also means hiring plans might be put off for a little while. So we could see a bit of a slowdown persisting."

But Flaherty and economists remained optimistic that the economy would make some modest gains after the second quarter of 2011.

TD economist Diana Petramala said that while the bank does not expect the Canadian economy to contract in the third quarter, the growth that takes place will "not be robust."

The latest StatsCan data "is a reminder that Canada is not an island, and is vulnerable to external economic shocks," Petramala told The Canadian Press in an interview.

StatsCan said consumer spending was up 0.4 per cent during the second quarter as Canadians spent more on furniture, car repairs, recreation and restaurant food.

The same period saw a 2 per cent decrease in consumer spending on new and used vehicles, following a 1.7 per cent drop in the previous quarter. Canadians also spent 0.5 per cent less on clothing and footwear.

NDP finance critic Peggy Nash conceded that Flaherty can't control global trade winds, but she said the finance minister can do more to spur growth at home.

"He can't control consumer demand or business demand in the U.S. or in Europe, but what he can do is invest strategically in Canadian infrastructure for example to increase demand here in Canada to take up some of that slack," she said.