Canada’s July GDP Grows 0.2% on Mining, Wholesaling
October 1, 2006 Filed Under: Mining Services, Mining Stocks, Potash Mining
Canada’s economy, the world’s eighth-largest, expanded 0.2 percent in July, the most in four months, led by mining, wholesaling and financial services.
The increase reported by Statistics Canada today in Ottawa compares with no growth in June and matches the median estimate in a Bloomberg News survey of 19 economists.
Today’s figures suggest the economy is rebounding after falling short of expectations for four months. Consumer spending and strong foreign demand for commodities boosted growth, while manufacturing stalled because factory exports were hurt by a strong currency and slower growth in the U.S., the biggest buyer of the country’s goods. July’s growth wasn’t fast enough to fulfill the central bank’s quarterly forecast, economists said.
“It was the best growth in four months, but it was not widespread,” Stefane Marion, an economist with National Bank Financial in Montreal, said in an interview. The economy is “still operating below its potential, and that’s key,” he said.
Eight of the 18 industries tracked by the statistics agency grew, while seven shrank and three remained unchanged.
The central bank raised its main lending rate seven times from September 2005 to May and paused in July, predicting growth of 3 percent in the last half of the year. The economy slowed to 2 percent in the second quarter, short of the bank’s 3.2 percent estimate. Policy makers have since said they’re still confident the 4.25 percent benchmark rate is at the right level to bring inflation to the central bank’s 2 percent target.
“Simply put, this report is Exhibit `A’ for the Bank of Canada to remain on the sidelines for quite some time yet,” Doug Porter, an economist with BMO Capital Markets in Toronto, said in a note to clients. “Even with the decent monthly gain, growth for all of the third quarter will be hard-pressed to reach the Bank of Canada’s latest estimate of 3 percent.”
Mining, oil and gas extraction rose 1.8 percent, bouncing back after declining for two months, led by coal and potash. Wholesaling, which was the fastest-growing sector in the past year, expanded 1 percent in July, the statistics agency said. Financial services gained 0.8 percent, the most since January, as investors bought and sold more stocks and bonds.
Farmers and lumber companies slowed 1.7 percent in July and builders declined 0.2 percent, the third straight drop, as residential construction shrank 1.1 percent. Manufacturing, which accounts for 16 percent of the economy, stalled in the month. It grew 0.6 percent in the past 12 months, compared with 2.5 percent for the economy as a whole, the agency said.
Some economists, such as Marion and CIBC World Markets Chief Economist Jeffrey Rubin, predict the Bank of Canada will embark on an interest-rate cutting program next year to boost demand in central Canada. The manufacturing sector in that part of the country has been hurt by the currency’s 18 percent rise against the U.S. dollar in the past three years.
The Canadian dollar fell to 89.46 U.S. cents at 4:23 p.m. in Toronto, from yesterday’s 89.97 U.S. cents.
The economy will expand about 2 percent in the third quarter even if reports show “relatively robust” growth in August and September, Eric Lascelles, an economist with TD Securities in Toronto, said in a note to clients. That means the central bank will cut rates in 2007 to boost demand, he said.
The U.S. economy grew at an annual rate of 2.6 percent in the second quarter, slower than previously estimated, as business spending, consumer demand and homebuilding slowed, the U.S. Commerce Department said yesterday. The Bank of Canada expects U.S. economic growth to slow to 3.5 percent this year and 3.2 percent in 2007 and 2008, crimping demand for Canadian goods and removing the need for higher rates.
The gain in U.S. gross domestic product, the value of all goods and services produced in the country, compares with the Commerce Department’s previous estimate of 2.9 percent, and 5.6 percent in the first quarter.