The Canadian economy is creeping out of recession, with September's growth spurt boding well for fourth quarter activity.
The country's gross domestic product grew at an annualized 0.4 per cent in the third quarter, Statistics Canada said Monday, the first growth in a year and a sign the recession is over.
The recent recession will be characterized as shorter, and sharper, than previous downturns, and most economists expect the return to recovery will be gradual.
“September was finally starting to show some signs of life,” said Pedro Antunes, director of national forecasting for the Conference Board of Canada. “Given September, the fourth quarter will kick up well. But if we look at 2010 as a whole, it is going to be a bumpy recovery” as private sector spending remains sluggish.
The Canadian dollar CAD/USD-I strengthened Monday, from Friday's close of 94.20 cents.
Domestic demand is lifting Canada out of recession. Consumer spending on goods such as cars and furniture, a pickup in machinery and equipment investments and government spending on engineering projects all contributed to the quarterly gain.
“With final domestic demand and government spending advancing at very strong clip, there appears to be significant domestic momentum in Canada,” said Millan Mulraine, economics strategist at TD Securities.
The third-quarter growth is considerably less than the Bank of Canada's projection for 2-per-cent expansion, and weaker than the 0.6 per cent that economists polled by Reuters had expected.
The bigger picture, though, is “that the Canadian economy is erratically grinding out of recession, led by broad-based gains in domestic spending,” said Douglas Porter, deputy chief economist at BMO Nesbitt Burns. “A relatively muted recovery remains the dominant theme.”
The country's economy grew at a much more sluggish pace in the third quarter than the U.S., which expanded 2.8 per cent, and behind the pace of most other major economies.
On a monthly basis, economic activity had been virtually flat between June and August. In September, however, the economy perked up with 0.4-per-cent growth as “most major industrial sectors increased their production,” the report said.
Goods-producing industries expanded 0.9 per cent in the month, the first increase in 14 months, as some mines reopened after shutdowns and oil-and-gas extraction increased. The services-producing industries grew 0.3 per cent, helped by stronger retail sales.
Most economists expect a much stronger showing in the fourth quarter of this year as record low interest rates bolster retail spending and real estate activity.
“The Bank of Canada's rate cuts are indeed working to spur borrowing and spending,” said Avery Shenfeld, chief economist at CIBC World Markets Inc.
The outlook for manufacturers is brightening. Fewer companies are seeing declining orders, and almost eight in 10, or 79 per cent, expect they won't shed jobs in the first two months of 2010, according to a November survey by the Canadian Manufacturers & Exporters.
In the third quarter, consumer spending rose 0.8 per cent, the biggest gain since the fourth quarter of 2007 as shoppers bought more used and new cars along with furniture, Statscan said.
Business investment in machinery and equipment grew 5.9 per cent after five quarters of declines. Spending on motor vehicles and industrial machinery led the surge, the report said.
Real estate investment and renovation activity rose for the second quarter in a row.
Government investment in buildings and engineering projects grew 5.6 per cent, the fourth straight quarter where growth has been 4 per cent or higher.
Exports rose, chiefly on a 28-per-cent jump in auto shipments. Energy product exports also advanced. Imports climbed for the first time in five quarters.
As consumer spending picked up, the savings rate declined. The personal saving rate eased to 4.8 per cent in the quarter as spending rose at a faster pace than incomes.
The economic decline in the second quarter was revised upwards, to 3.1 per cent from 3.4 per cent.
