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Economy likely to have hit a speed bump in second quarter

Utilities output also probably slipped in April, having been up on below-normal temperatures earlier in the year.


Canada's economy is believed to have stalled as the second quarter got up and running.

Many economists expect Statistics Canada to report Friday that the economy expanded in April by a tiny 0.1 per cent,

possibly setting the second quarter on a path for annualized growth in gross domestic product of somewhere shy of 2 per cent.

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Some observers expect a flat reading, and even think there is a possibility of a contraction of 0.1 per cent.

"A quick glance at the pace of economic activity in Canada would have one think that things are just hunky dory, with growth tracking 2.5 per cent in the first quarter of the year," said Emanuella Enenajor of CIBC World Markets.

"But we see activity slowing in [the second quarter], and April's GDP reading could be the first piece of evidence supporting that view.

Feeding into April's weaker showing was a slump in the manufacturing sector, which

was hurt by maintenance closings at refineries, among other things.

Partly offsetting that, however, were better retail sales.

"Factory sales were awful, falling 1.6 per cent in real terms according to the April report on shipments," said economists at National Bank of Canada.

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"But given the reported increase in real inventories, actual output in the manufacturing sector probably held up better than sales. Production in the energy sector may also have moderated a bit after two strong months. Softness in those areas may more than offset likely contributions from retailing and wholesaling."

Utilities output also probably slipped in April, having been up on below-normal temperatures earlier in the year, Ms. Enenajor said.

"But despite all those negatives, we still see a positive GDP reading that month as hours worked and export volumes both ticked higher, while wholesale and retail volumes were up, although the latter was boosted by lower value-added auto sales."

All of this has economists forecasting that the economy will expand by 1.6 per cent to 1.8 per cent in the second quarter.

"While a flat April isn't a good start for [the second quarter], the firm handoff from the strong start to the year still leaves quarterly growth on track for about 1.8 per cent annualized," said senior economist Benjamin Reitzes of BMO Nesbitt Burns.

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