Canadian economy to slow in near term; declining business sentiment to hamper growth

Canada’s real GDP in April grew 0.1 percent month-on-month, in line with market projections. Falls from the earlier two months were unchanged. The data released on Friday affirms that after a solid handoff from last year and strong growth in January, which gave a solid start to 2016, Canada’s economy has hobbled in the following three months with the pace waning rapidly. Falls in activity due to the Alberta wildfires is expected to further slow down the Canadian economic growth in the near term, noted TD Economics in a research report.

The wildfires will drag down the GDP growth, especially in oil extraction, in May and June. This is likely to result in the economy contracting steeply in the second quarter of GDP by around 1.1 percent, in spite of receiving certain aid from growing exports.

Even if capacity-absorbing growth is likely to be in progress in the second half of 2016, Canada’s economy will continue to be weak as growth will be constrained by falling business sentiment in the wake of Brexit vote. Overall, the Canadian economy is unlikely to grow beyond a meagre 1.2 percent in 2016, according to TD Economics.

Delving into details about April’s real GDP growth, manufacturing output grew 0.4 percent in the month, thanks to higher production in non-durable goods. Meanwhile, real GDP in nondurable manufacturing grew 0.9 percent in April. The growth was primarily driven by increases in coal products and petroleum and chemicals manufacturing.

Both the industries are expected to have been encouraged by increasing prices of commodities. In April, manufacturing of durable goods stabilized following a drop for two straight months. Declines in wood and machinery products were countered by an increase in the manufacturing of transportation equipment. Growth was also recorded in other sectors including finance and insurance, utilities, public sector and wholesale trade.

Meanwhile, oil and gas extraction remained a drag on the economic growth in spite of oil prices rising above USD 45 per barrel throughout the month. Oil and gas extraction dropped 2.4 percent in the month. Moreover, support activities for oil and gas and mining continued to be at low levels. This suggests that the sector would remain depressed in the near term, added TD Economics.