Canada's economy continued to stagnate in August, a grim reminder of the country's struggle to pull out of an ugly recession.
Gross domestic product fell 0.1 per cent in August, following a flat reading in July. That means the first two months of the third quarter, when the economy had been expected to grow, have fallen flat as Canada continues to struggle out of recession. Still, the reading is from two months ago, and many economists believe the economy is now rebounding.
The decline in output was driven by the energy industry and the manufacturing sector, Statistics Canada said Friday, offset by gains in the public sector, utilities, retail trade and construction.
The Statistics Canada report comes amid mixed economic indicators of late. The Bank of Canada has said it believes the recession ended last quarter, and job losses have been easing across the country.
The weak showing, however, was affected by notable factors. While oil and gas extraction fell 2.3 per cent, Statistics Canada noted that maintenance at some facilities in eastern Canada slowed production. In the mining sector, following the reopening of some mines, temporary closures led to a 9.1-per-cent drop in copper, nickel, lead and zinc mine output.
And the real estate sector continued to show signs of a housing rebound, as real estate brokerages continued to do well. Construction also expanded, marking its first growth since last October.
The August reading will raise concerns that Canada's recession may not have ended in the third quarter, and will cast some doubt on the Bank of Canada's forecast of third-quarter growth of 2 per cent.
Speaking to reporters in Toronto, Finance Minister Jim Flaherty said the August numbers confirm his government's view that, while there are positive signs, the recovery is fragile and "we're not out of the woods yet."
TD Securities economics strategist Ian Pollick said that while the August reading was weak -- and still could indicate a negative quarter -- he expects September was a strong month.
He still believes the recession ended last quarter and he noted that monthly figures have recently been a poor indicator of quarterly outcomes.
"This is the initial phase of a recovery, so growth is expected to be tepid and we wouldn't draw too many dire conclusions from this release," Mr. Pollick wrote in a research note. "As the massive fiscal and monetary stimulus continues to garner momentum, the recovery should regain traction."
Robert Kavcic of BMO Nesbitt Burns agreed.
"The modest decline in August GDP does not defeat the point that the Canadian economy has turned the corner, and as we saw in the U.S. yesterday, Canada's recession is in the rearview mirror," he said. "However, tempering the recovery are those sectors negatively impacted by sluggish U.S. demand and the strong Canadian dollar, and that could pose some downside risk to the Bank of Canada's 2-per-cent growth call for [the third quarter]"
The Canadian dollar slipped after the report, falling to 93 cents U.S.
Several countries have been inching out of the worst global recession since the 1930s, and Asia, in particular, is leading the world in growth.
On Thursday, U.S. data signalled the end of America's recession, with annualized growth of 3.5 per cent in the third quarter. Some economists question, however, whether a sustained rebound can be supported given that the economy was pumped up by government measures such as the "cash for clunkers" program and tax credits for first-time homebuyers.
In the Asia-Pacific region, Japan, Hong Kong, Taiwan, Singapore and New Zealand all marked the end of their recessions in the second quarter. In Europe, Germany, the region's biggest economy, also pulled out of the slump, along with France and Sweden.
With files from Tara Perkins
- America's Great Recession ends. Now what?
- Carney gets break from Norway's interest rate move
- Why the Canadian dollar has been bouncing higher