Canadian Economy Slows Down Unexpectedly

Photo by Evan Leeson

Statistics Canada data shows that Canada’s economy underwent an unexpected decline in February. The change in gross domestic product growth was -0.2 per cent, constituting the first negative result since the last GDP downturn in September of last year.

Diana Petramala, an economist with TD Bank, commented on the situation: “The Canadian economy appears to be losing some steam.” The economy would need to increase 0.3 per cent in March to reach the Bank of Canada’s 4.2 per cent expectations for the first quarter of 2011, as Derek Holt, vice-president of economics at Scotia Capital, said.

The current pattern is viewed as quite a surprise after three consecutive months of growth (November to January). Such unfavourable results do not seem to be special in North America, as the U.S. Bureau of Economic Analysis recently issued a report showing that the U.S. economy slowed down from +3.1 per cent GDP growth in the last quarter of 2010 to only +1.8 per cent in the first three months of this year.

Several factors seem to be involved in the decline. The amount of Canadian exports could not rise as quickly since the U.S. economy still remains on its slow recovery path and has not yet reached its full potential. Furthermore, the high values of the loonie did not help at all.

Manufacturing production figures went down by 1.6 per cent, pulled down especially by the car production sector. Overall goods industries fell by 0.6 percent. On the other hand, the service sector kept its stable rise as consumer spending remained high and boosted retail sales.