Slow Economic Growth For Canada On The Cards

01 August 2012 10:00 - Phoebe Robinson

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Slow Economic Growth For Canada On The Cards

It has been said that Canada’s economy slowed in May and that it was due to drops in the manufacturing and construction industries where activity was threatened the strong gains that were made in the service sector. The economy did grow during may by 0.1%, statistics Canada said after a 0.3% increase the previous month and a similarly disappointing 0.1% rise in the month of march. The majority of forecasters had expected a 0.2% growth in May.

The Bank of Canada has recently lowered its second-quarter predictions to 1.8% from its original forecast of 2.5%.  The retail sector however has been holding strong and was the main gain in May’s GDP. Sales were up 0.7% which followed the 0.9% decline in April.

Other sectors such as accommodation and food services were also higher in May, they were up by 0.6% and the finance, insurance and real estate sector rose 0.2%. Mining oil and gas extractions also went up by 0.6% after a 0.2% rise in April. Both sectors manufacturing and construction activity fell in May, they were down 0.5% and 0.2%.  It is thought that that the fall of the construction sector was a result of a drop in residential building. The output of real estate agents and brokers declined 4.8% after increasing for three consecutive months, as activity in the home resale market decreased,” Statistics Canada said.

 All told, this sets the second quarter on track for no better than 2% growth, and will lead to downward revisions in the consensus for the quarter,” said Avery Shenfeld, chief economist at CIBC World Markets.

The growth outlook for the Canadian economy for the entire year is 2.1% and 2.3% in 2013. Before the Eurozone crisis became such an issue the forecast was around 2.5%.. The central bank has held its lending rate a near record low of 1% since September 2010. This is a move to encourage growth while also keeping inflation in check.

Diana Petramala, at TD Economics said the GDP report “is largely consistent with the Bank of Canada’s overall story of an economy growing close to its trend rate.”

“Modest economic growth and inflation prospects are expected to keep the Bank of Canada on hold through the rest of this year, with the first rate hike unlikely to come until early 2013.”

 

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