It’s hardly news that energy and commodities are integral to Canada’s economic success. Friday’s growth figures from Statistics Canada, though, offer a vivid snapshot of just how dependent the economy has become on steady production in the oil-and-gas sector.
According to a Statscan report released Friday, gross domestic product in April grew at the fastest pace since December – 0.3 per cent – after a piddly 0.1-per cent gain in March, and a contraction in February. But don’t get too excited. The main driver was energy output, which rebounded after temporary shutdowns in the previous two months. Also, mining companies increased production.
All told, in April, the mining and oil-and-gas extraction sector grew by 2.7 per cent.
Elsewhere, the picture wasn’t nearly as pretty.
Manufacturers posted a 0.3-per cent drop, construction slipped 0.1 per cent, and retail fell 0.8 per cent. The retail drop is just the latest sign that the consumers who make up the bulk of economic activity are reaching the limits of their capacity to borrow and spend, or are holding back because they’re worried about losing their jobs amid all the global turmoil.
“Excluding the bounce back from the resource sector, GDP would have risen by less than 0.1 per cent, pointing to weak underlying growth,” Emanuella Enenajor of CIBC World Markets said in a note to clients. “There’s not much reason for protracted excitement.”
Economists say retail probably bounced back in the past couple of months due to lower gasoline prices. However, lower gas prices are at least in part to the drop in oil prices linked to worries about the damage that a deepening European crisis could do to consumer and business sentiment -- everywhere from the continent itself, to struggling economies like the United States, to the big emerging markets whose demand for commodities is a key determinant of Canadian producers' profits.
Bank of Canada policy makers have already indicated concern that the global turmoil could push commodity prices down further, restraining profits for Canadian producers in the months ahead and limiting the sector’s ability to drive growth.
Governor Mark Carney and his officials are quick to point out that even as commodity prices have dropped, they’re still at historically high levels, which is true.
Still, in their June 5 interest-rate decision, they noted that the “more modest” global momentum of late, and “heightened financial risk aversion” had reduced prices – and central bankers rarely include a new point in a rate statement unless they’re at least a little worried about its longer-term impact.
Also, government spending, which subtracted from growth in the first quarter of the year, was down 0.2 per cent in April. That’s the ninth straight monthly decline. What’s new, though, is with the resource sector vulnerable and consumers spending less, the bite from deficit-cutting – which is set to increase – could play a bigger role in curbing growth during the months ahead.
“Government austerity is already imposing a measurable drag on Canada’s economy,” said Erin Weir, an economist with United Steelworkers.