Canada's Economic Growth Slows

Canada's economy grew less than economists predicted in the second quarter and shrank more in the first three months of the year than initially estimated, possibly giving the Bank of Canada more reason to cut interest rates this year., Bloomberg 8/29/2008 6:09:23 AM

Gross domestic product expanded at a 0.3 percent annualized rate to C$1.33 trillion ($1.26 trillion) after a revised 0.8 percent drop in the first quarter, Statistics Canada said today in Ottawa.

The report may lead Bank of Canada Governor Mark Carney to alter his position that economic risks are ``balanced'' between slow growth and high energy costs ahead of next week's rate decision. Before today, most economists surveyed by Bloomberg forecast the bank would leave borrowing costs unchanged on Sept. 3 and lower them in the first three months of next year.

The rebound in growth may help Prime Minister Stephen Harper decide whether to call an election this year and argue that tax cuts last year helped the economy avoid a recession. Harper has also said the opposition Liberal Party's plan to tax pollution would worsen consumer confidence already shaken by record energy costs.

Harper may call an election in the next few weeks because he says Parliament's ability to function is being obstructed by opposition parties. Liberal Party Leader Stephane Dion says Harper wants to avoid waiting until a mandated October 2009 election out of fear the economy will worsen by then.

The economy was split in the second quarter between gains in domestic spending and profits for energy producers, and losses for manufacturing production and exports.

Government spending increased 1.3 percent in the second quarter from 0.6 percent in the previous three months. Household expenditures growth slowed for a third straight quarter to 0.6 percent, on reduced automobile purchases, Statistics Canada said.

Exports fell 1.5 percent in the second quarter, the fourth straight decline, as weak U.S. demand pared shipments of lumber, automobiles and factory goods. Imports advanced 0.6 percent. Company profits surged 8.3 percent, the fastest since the first quarter of 2004, on high prices for crude oil, natural gas and coal.

On a monthly basis, the economy grew 0.1 percent in June, matching economist predictions, after shrinking 0.1 percent in May. The economy rebounded in June as construction advanced 0.4 percent and wholesaling gained 0.5 percent.

Separately, Statistics Canada today said manufacturing product prices raw-material costs rose in more slowly in July than in June, as energy price gains ebbed. The industrial product price index rose 0.4 percent in June, while raw-material costs for factories 1.4 percent.