Canada's Economy Shrank 0.3% in August

Canada's economy contracted 0.3 percent in August as wholesalers processed fewer shipments of automobiles and factory production dropped., 10/31/2008 8:42:02 AM

Wholesaling plunged 3.1 percent, the most in five years, and manufacturing fell 1.1 percent, Statistics Canada said today in Ottawa. Economists in a Bloomberg survey predicted gross domestic product would dip 0.4 percent, the median of 18 estimates.

The world's eighth-largest economy is scraping close to a recession amid a global credit crisis and sluggish orders for factory goods, domestically and from the U.S. The Bank of Canada says the economy is shrinking this quarter and will stall in the first three months of next year, the worst performance in almost two decades.

Some industries that dipped had been the most robust parts of Canada's economy in recent years. Energy production declined 0.5 percent in August, and construction fell 0.3 percent.

The domestic weakness comes on top of signs that demand from the U.S., the destination for three-quarters of Canada's exports, will fall further. Spending by U.S. consumers dropped more than forecast in September, capping the weakest quarter in three decades and indicating the economic slump is deepening.

Canada's worsening slowdown forced Finance Minister Jim Flaherty to say two days ago that he won't ``engineer a surplus simply for the sake of saying we have a surplus,'' hinting he may break a campaign promise to avoid budget deficits. Slower revenue gains and higher spending threaten a record streak of 11 consecutive budget surpluses for the oil-rich country.

Flaherty will meet with finance ministers from Canada's provinces on Nov. 3 to discuss the economy, and Prime Minister Stephen Harper meets with provincial leaders a week later.

Harper led his Conservative Party to re-election on Oct. 14 with promises to steer the country through the slowdown without big spending or tax cuts.

One bright spot in the report was a 0.8 percent increase for accommodation and food services, as tourists flocked to Quebec City this summer to commemorate the 400th anniversary of its founding by French explorers.