Canadian real GDP fell at a 3.4% annual rate in Q2, a bit worse than expected and the third
quarterly decline in a row. Q1 was revised to a 6.1% drop from the initial estimate of -5.4% (rendering it the worst quarterly decline in the past 50 years after all).
A glimmer of good news was that GDP managed to rise 0.1% in June, breaking an ugly 10-month string of declines. One month of growth certainly does not by itself herald an end to the recession, but there are plenty of indications that the economy kept growing in July and August. The quarterly decline was driven by net exports, which alone carved roughly 3.5 percentage points from growth in Q2.
Other areas of weakness were business investment and inventories. In contrast, most components of domestic demand were healthy as consumer spending managed to nudge higher, government spending perked up as the stimulus measures appeared to kick in, and housing rebounded as re-sales came roaring back. For June alone, there were solid gains in retail and wholesale trade, but manufacturing fell 0.7%. There was yet again a deep split between goods-producing industries (-0.6%) and services (+0.4%).
The Bottom Line: The upturn in June GDP, the swift snapback in housing amid rebounding
consumer confidence, and a stabilizing U.S. economy all suggest that Canada’s recession is indeed
ending. A pick-up in auto production from extreme lows and some inventory rebuilding should help
support growth of around 2-1/2% in Q3.
However, this recession with its three-quarter 3.3% drop in GDP 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. Douglas Porter
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