The Canadian economy swooned in June posting the biggest drop since the recession and pushing average growth for the second quarter down to 1.7 per cent, hurt by a construction strike in Quebec and flooding in Alberta.
The numbers weren’t as bad as advertised, however.
June’s fall was limited to 0.5 per cent, still the worst result since March 2009, and the quarter’s growth were better than the Bank of Canada’s gloomy prediction for one per cent. As well, Statistics Canada downgraded its early reading for first-quarter growth from 2.5 to 2.2 per cent.
It could have been worse, but economists said the spillover shocks from flooding in Alberta and the Quebec strike turned out to be less severe than anticipated.
Still, analysts said the Bank of Canada will likely look through the June setback as a temporary aberration, adding that the report Friday is unlikely to change governor Stephen Poloz’s view on leaving interest rates unchanged at next week’s rate announcement.
That also appeared to be the initial reaction of markets as well, as currency traders largely shrugged off the report, leaving the loonie hovering around 95 cents U.S.
A strong quarter for household consumption, up 3.8 per cent on an annualized basis, saved the economy from a worst fate, analysts said, although with debt levels at near-record highs, consumption is unlikely to hold up growth much longer. For the economy to kick into a new gear, manufacturing and exports must pick up, they said.
“A softer Canadian dollar and better U.S. growth can’t come soon enough for manufacturers,” said Benjamin Reitzes, a senior economist with BMO Capital Markets.
On that front there was some good news.
On Thursday, the U.S. revised its second-quarter performance to 2.5 per cent from a previously reported 1.7, with most analysts betting growth south of the border will accelerate further in the second half of the year.
The recent five per cent devaluation of the loonie from parity with the U.S. dollar is also expected to help manufacturers and exporters, who ship much of their output to America. Some analysts see the loonie dropping to about 90 cents US by year’s end.
Much of the data Friday showed widespread weakness, but mostly because of temporary factors.
In June, construction tumbled 1.9 per cent, most attributed to the Quebec strike which ended in early July; arts, entertainment and recreation plunged 4.3 per cent, with attendance at sporting events particularly hit; manufacturing fell 1.3 per cent and was down 3.1 per cent over last year.
Quarterly, business investment contracted 2.5 per cent and exports cut 0.7 points from the quarterly growth. Besides household consumption, housing was another bright spot, rising 5.4 per cent after three consecutive quarterly declines.