Canada’s economy shrinks in May

Canada’s recovery has stalled for two months now, the economy contracting in May by 0.3 per cent.

Having come in flat in April, gross domestic product decreased in May, push down by the mining and energy sectors, and, to a lesser extent, manufacturing and construction, Statistics Canada said Friday.
“After two consecutive monthly increases, mining, oil and gas extraction fell 5.3 per cent in May,” the federal agency said. “Oil and gas extraction decreased by 4.2 per cent as wildfires in Northern Alberta as well as maintenance shutdowns resulted in reduced production at oil fields.”

The manufacturing sector declined by 0.4 per cent, and the construction industry by 0.3 per cent.

“Canada’s economy was hit by one thing after another in the spring, and it now faces yet another hurdle from the deepening uncertainty emanating from the U.S. debt drama,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

While we believe that the most likely outcome is a mild pick-up in growth over the second half, the starting point is even weaker than we expected and there are still clearly plenty of potential dangers lurking ahead for the economy.”

Soft export numbers released earlier pointed to a weaker GDP showing, but the slowdown reported Friday was disturbing and “appreciably larger than expected,” said Emanuella Enenajor of CIBC World Markets.

“Not surprisingly, manufacturing was also a soft spot in the report, although that sector could show greater traction in coming months as parts problems fade,” she added.

It wasn’t all bad news. Financial services and real estate eked out a 0.2-per-cent gain, helping to offset some of the poor showing on the production side.

Globe and Mail Update

Published Friday, Jul. 29, 2011