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Manufacturing slump stalls economy in April

Copper mining in B.C.


Canada's economy has stalled, though a flurry of mining activity is taking some of the sting out of a manufacturing slowdown.

The country's gross domestic product was flat in April, Statistics Canada said Thursday, an anemic reading that nonetheless was better than the contraction economists had expected. Both goods and services were flat in the month.

The weak start to the second quarter points to a lull in the economy after a strong start to the year. Still, most economists, along with the Bank of Canada, expect momentum to rev up in the second half of 2011 as auto manufacturers recover from Japan-related supply disruptions and gasoline prices ease, taking some pressure off consumers.

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The Statscan report paints a picture of uneven growth. Mining was red hot, construction was strong – despite wet weather – and retail activity picked up a bit. On the flip side, Japan's supply disruptions walloped manufacturing, specifically in the auto sector, while real estate activity slumped.

Mining and energy extraction is by far the country's fastest-growing sector, tallying growth of 9.7 per cent in the past year. Momentum in mining continued in April, when it was the fastest-growing sector in percentage terms, the agency's figures show.

Higher prices for commodities are driving companies to increase production, ramp up construction of new projects, or increase exploration to capitalize on robust global demand from countries such as China. Osisko Mining Corp., for example, started producing gold at its mine in Quebec this spring, while Copper Mountain Mining Corp. has just finished construction on its processing plant in British Columbia.

"Strength in commodity prices in the last few years is translating into real economic activity," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.

The mining numbers are encouraging for the Canadian economy, but the sector is still only a small part of the country's GDP. Mining and energy account for just 4.6 per cent of output, Mr. Porter said.

Mining's gains were tempered by a slide in manufacturing, which tumbled 0.7 per cent. A 6.9-per-cent drop in cars and parts production was mostly due to supply disruptions following the earthquake and tsunami in Japan, Statscan said. That drop, on top of lower production in aerospace, caused a 4.7-per-cent reduction in transportation equipment manufacturing.

The GDP report landed a day after an inflation reading showed the hottest annual rate in eight years, fuelled by higher gasoline prices. That report raised eyebrows, though economists expect inflation is also being driven by temporary factors.

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"Both of these results could be deemed to be a surprise relative to forecasts a few months ago, but in the messy world of real data are not actually that surprising at all," noted Avery Shenfeld, chief economist at CIBC World Markets.

Monthly numbers tend to bump around, and the Bank of Canada won't read as much into the ebbing GDP growth or the runup in inflation as the markets do, he said. Given the central bank's longer-term views, a July interest rate hike is unlikely, with a probable increase starting in the fall.

The Canadian dollar extended its gains Thursday, closing at $1.037 (U.S.), its highest level in six weeks.

With files from reporter Brenda Bouw

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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