JONATHAN HAYWARD
Statistics Canada reported Monday that Canada's gross domestic product grew by 0.1 per cent in June, the first monthly increase since July, 2008. The return to growth, although faint, was expected. Here's what the country's leading economists have to say:
The turnaround : "Canada should see a big bounce in the third quarter"
Avery Shenfeld, chief economist for the Canadian Imperial Bank of Commerce, said prior to Statscan's official release: "Mark it on your calendar - the Canadian recession ended in June."
The economy has turned the corner, he said, "supported by growth in retailing, manufacturing, wholesaling and financial services, and is likely to be followed by more of the same over the summer."
CIBC had expected more robust growth of 0.3 per cent in June, but held to its view that the recession is finally over.
"True, the second quarter GDP tumbled at a 3.4 per cent annualized pace, a larger drop than expected…But the good news is that Canada's output has stopped contracting," CIBC economist Krishen Rangasamy said in a research note.
"And with the auto plant restarts in July, coupled with inventory replenishments on both sides of the 49th parallel, Canada should see a big bounce in the third quarter."
Retail sales up, expect back-to-school boost
Canadian retail sales increased by 1 per cent in June. The increase was fuelled primarily by higher gasoline prices. Still, economists took this as a sign that consumers are feeling more confident.
The Bank of Nova Scotia said Monday this momentum is expected to continue. Back-to-school spending is firmer than had been predicted, with parents expected to spend an average of $310, about the same as last year.
"Spending by Canadian households on school-related goods and services typically is more stable than other discretionary purchases in both good and not-so-good times," said Aron Gampel, Scotiabank's deputy chief economist.
Housing momentum builds
After a strong second quarter, the Canadian Real Estate Association has revised its outlook for the balance of the year, lifting its forecast for the number of resale homes trading hands to 432,600 in 2009, an annual decline in activity of just 0.4 per cent compared to levels set in 2008. The revision marks a significant upward change from the previously forecast decline of 14.7 per cent.
"Sales activity started off the third quarter on a strong footing. The difference in the resale housing market now, compared to the beginning of the year, is night and day, and nowhere is this more apparent than in the West," association president Dale Ripplinger said.
Doug Porter, deputy chief economist at the Bank of Montreal agreed: "Some large cities will report home sales later this week, with early indications the momentum continued in August."
Unemployment: still a concern
Despite emerging signs of economic growth, "employers continued to rain pink slips in recent months," CIBC's Avery Shenfeld said in an economic forecast. Still, he predicted, "a return of some factory workers, hiring in some service sectors like real estate, and the end of a City of Toronto strike should have been enough to finally push job creation into the plus side."
However, BMO's Mr. Porter sees few signs of real recovery in the labour market just yet and expects that job losses continued in August, with the unemployment rate nudging up to 8.7 per cent.
United Steelworkers economist Erin Weir noted that, while there was a glimmer of hope that the economy grew slightly in June, there will be a lag before hiring picks up. "Employers can begin increasing production by having existing employees work more hours and by taking advantage of productivity improvements. Only after these avenues are exhausted will employers start hiring again," Mr. Weir said.
The pace of recovery? Sluggish
Mr. Porter said in a research note that the pick-up in auto production from extreme lows and some inventory rebuilding should help support growth of about 2.5 per cent in the third quarter.
"However, this recession …ranks right up there among the most serious downturns of the post-war era, and the strength and sustainability of the recovery remains an open question."
Toronto-Dominion Bank economist Diana Petramala said improvement in United States demand for commodities such as coal, petroleum and industrial products will help support Canadian exports. And strength in Canada's resale housing market "should act as a continued source of support to residential investment and consumer spending," she said.
"Moreover, the recent recovery in asset prices through home price appreciations and rallies in equity markets will help give consumers the confidence they need to continue the momentum in spending."
However, she added, the recovery will be sluggish. "In particular, the strength of the Canadian dollar will weigh down the recovery in exports."