Canada's Economy Shrank in Q1

Canada's economy shrank between January and March for the first three-month drop in almost five years, giving the Bank of Canada more reason to lower borrowing costs again next month., Bloomberg 5/30/2008 6:34:34 AM

Gross domestic product contracted at a 0.3 percent annualized rate in the first quarter, leaving it at C$1.33 trillion ($1.34 trillion), Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg said the growth rate would slow to 0.4 percent from 0.8 percent in the fourth quarter, according to the median of 22 estimates.

Bank of Canada Governor Mark Carney cut interest rates by half a percentage point last month for the second straight meeting and said more action was likely needed because an export slump would bring the slowest growth since the last recession in 1992. Today's report indicates production hasn't yet turned around. The central bank has reduced interest rates at four consecutive meetings.

Falling automobile production led a 3 percent drop in manufacturing in the first quarter and a 1.1 percent decline in exports, Statistics Canada said. Almost all of Canada's automobile production is shipped to the U.S., and excluding car and truck production and related industries the economy would have grown in the first quarter, the statistics agency said.

Exporters have been hurt by weaker U.S. consumer demand after the subprime mortgage market collapsed last year, and by the Canadian dollar's appreciation to a record.

On a monthly basis, the economy shrank 0.2 percent in March after a revised 0.3 percent decline in February. Economists forecast growth would be little changed.

Separately, Statistics Canada said manufacturing product prices and raw-material costs rose in April, both led by energy.

The industrial product price index rose 1.4 percent, while raw-material costs for factories rose 5.1 percent. Economists expected product prices to increase 1 percent, and input costs to increase by 2.8 percent, according to the median estimates in Bloomberg surveys.