Bussines News

GDP down 0.1 per cent in Q1 in first decline in 5 years, surprising economists TORONTO — Canada's economy shrank by 0.1 per cent in the first three months of this year - the first quarterly decline in real gross domestic product since the second quarter of 2003. Statistics Canada said Friday the economy stalled "due to widespread cutbacks in manufacturing, most notably in motor vehicles." The Canadian dollar skidded by about a penny immediately after the news, trading later in the morning at 100.43 cents US, down 0.67 cent from Thursday's close. The economy, which had begun to lose momentum in the second half of 2007 as exports slowed, suffered from the factory slowdown during the January-March period, while winter weather disruptions added to the quarter's woes. Statistics Canada said economic output contracted by 0.2 per cent during March. Private-sector economists had expected first-quarter growth of 0.1 to 0.4 per cent, slowing from 0.8 per cent in the final three months of 2007. "The big story here was a significant slowdown in inventories (largely reflecting a deep cut in auto production in Q1), as inventories sliced more than four percentage points from overall growth," commented BMO Capital Markets economist Douglas Porter. "Aside from that, the play was okay, as most aspects of final domestic demand were still solid - consumer spending rose 3.2 per cent, business investment was up 2.2 per cent and government spending rose 3.4 per cent, although housing was down 6.8 per cent." Gross domestic product - the country's total output of goods and services - now is up by just 1.7 per cent year-over-year. "Both the quarterly and monthly GDP results were below the low end of the range of market estimates," Porter commented, adding that this leaves the door open for another interest-rate cut by the Bank of Canada in June. "While most of the weakness was due to huge slice in inventories, many of the other spending categories were a bit more sluggish than expected," Porter wrote. "Even so, we continue to maintain that the softness in real GDP gives a highly distorted picture of how the broader economy is faring - real income growth remains buoyant." Excluding the vehicle industry and its ripple effects through the economy, Statistics Canada estimated GDP grew by 0.1 per cent in the first quarter. Output of goods-producing industries declined 1.5 per cent, while the service sector grew 0.5 per cent. Declines in manufacturing, mining and some transportation industries were partially offset by increases in retail trade, accommodation services and the financial industry. Exports of goods and services fell for the third straight quarter, in line with a third consecutive decline in manufacturing output. The economy continued to create jobs but average hours worked declined, hit by harsh winter weather in many regions which hampered construction and other industries. The Canadian economy's annualized decline of 0.3 per cent in the quarter, compared with Thursday's report of 0.9 per cent annualized growth in the United States.