Alberta flooding, Quebec strike behind expected dip in GDP

Canada's economic output probably contracted in June, but the downturn is likely to be short-lived.

Flooding in Alberta and a construction strike in Quebec put a damper on almost all the economic indicators for the month, so Statistics Canada is likely to report on Friday that gross domestic product shrank between 0.4 and 0.6 per cent, economists say.

The good news is that that July will probably show a rebound.

The weakness "should prove to be temporary as construction workers make up for lost time and in the case of the floods you actually then start seeing a lift in GDP from the reconstruction activity," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

Mr. Ferley, who is expecting a 0.4-per-cent decline in GDP in June, warned that it is difficult to say just how much an effect the flooding and strike will have on the overall numbers.

A dip in June can be chalked up in part to a relatively strong showing in May, said CIBC Would Markets economist Emanuella Enenajor.

Ms. Enenajor, who predicts a 0.6-per-cent slowdown in June GDP, says July will probably show a slight tick up.

"We are expecting third-quarter growth to accelerate, but … we're not looking for too much of a bounce back, particularly not as strong a rebound as the Bank of Canada may be eyeing," she said.

While the Bank of Canada is calling for a 3.8-per-cent rise in GDP for the third quarter, Ms. Enenajor is looking for something more in the vicinity of 2 per cent.

Inclement weather and labour unrest is only part of the story behind the weak numbers expected to be unveiled on Friday, economists say.

"June was a very weak month for the Canadian economy with flooding in Alberta and the Quebec construction strike taking a toll," said BMO Capital Markets senior economist Benjamin Reitzes in a note. "Unfortunately, the declines in the retail, wholesale and manufacturing activity seen in June were also driven by broader underlying weakness."

Mr. Reitzes is expecting GDP to contract 0.5 per cent for June.

But despite a weak June, Mr. Reitzes said that second-quarter GDP growth is on track to end up at around 1.6 per cent, well above the the Bank of Canada's forecast of 1 per cent growth for the period.