Canadian Growth Slows

31 July 2012 12:00 - Lucy Williams

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Canadian Growth Slows

Canada’s economic growth has slowed with growth in May coming in at just 0.1 percent as a result of poor manufacturing and construction activity. These figures have offset strength in natural resources. Figures for GDP growth were forecast to come in higher at 0.2 percent. Statistics Canada released reports about Canada’s gross domestic product with initial predictions of a 0.2 percent gain however this has not been the case with economic growth unfortunately slowing.

Further economic problems in Europe continue to affect the Canadian economy as European problems appear increasingly intractable. On top of this Canada’s economy is being weighed down by heavy consumer debt, affecting consumer spending, and weak exports, affecting trade. Manufacturing activity dwindled, dropping by 0.5 percent with construction activity also falling by 0.2 percent as the housing market softened. However some positive news was received as the country’s mining, oil and gas extraction industries grew at a healthy pace for a second consecutive month while crude production continues to rise.

CIBC chief economist warns Canadian governments to start considering a contingency plan with the ominous threat of a second global crisis looming. The CIBC economist stated that “as Europe struggles through a recession and America’s economy continues to disappoint, markets are focused on the downside risks...so much so, that for some weeks, a small interest rate cut was priced into Canada’s yield curve”. It was suggested that now the best thing for Canada to do would be for the federal government to introduce a second round of stimulus spending by borrowing more money and using the funds. This recommendation is set against the prospect of the Bank of Canada cutting interest rates any further which would fuel an overheated housing market. CIBC’s Avery Shenfield goes on to suggest that stimulus would be good for the US economy saying that “the US has a huge reservoir of unemployed constructions workers, and by putting them back to work, the government would actually generate additional tax revenues and economic growth that could cover the future costs of borrowing”.

In other economic news, the Canadian dollar is up against the greenback reversing losses but falls to new lows against the Australian dollar. The Canadian dollar is expected to see more action as policy rate decisions by the US Federal Reserve, the Bank of England and The European Central Bank are due to be announced later in the week.

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Related Links:
• Statistics Canada
Official Website

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