Canada's economy shrank unexpectedly in February, reinforcing an increasingly gloomy domestic outlook and cementing analysts' predictions that the Bank of Canada will cut interest rates again in June.
Statistics Canada said on Wednesday that gross domestic product fell by 0.2 percent in the month, mostly because of weak performances from wholesaling and manufacturing.
Retailers were hit by a new public holiday in Ontario, traditionally Canada's economic powerhouse, and the energy, transportation and financial sectors also declined.
Analysts had, on average, expected an increase of 0.2 percent in February, down from January's strong 0.6 percent growth rate but well above the December figure, where the economy declined by 0.7 percent.
But expectations have been falling too. The Bank of Canada last week slashed its prediction for second quarter growth to just 0.3 percent from a previous estimate of 2 percent. It cut its benchmark interest rate by 50 basis points to 3 percent.
"We are expecting the Bank of Canada to cut again on June 10 and today's weak real GDP report supports this view," Scotia Capital Research said in a note to clients.
Michael Gregory, senior economist at BMO Capital Markets, noted that GDP had contracted by an annualized 0.7 percent over the last three months, the first time this figure had been negative since November 2001.
"Canada's sturdy domestic demand is being nearly offset by the head winds coming from U.S. recession, a strong (Canadian dollar) and credit conditions," he said.
Canadian industry is battling a U.S. slowdown, high raw material and fuel prices and a strong Canadian dollar, which is boosting the cost of Canadian goods abroad.
"In all likelihood, the knock-on effects from the U.S. showdown are only beginning to be felt... (This) suggests further Bank of Canada easing is in the pipeline," said Pascal Gauthier of TD Economics.
In another sign of the pressures on the Canadian economy, Statscan said industrial product prices had increased by 1.7 percent in March from February, pushed up by a sharp rise in the price of petroleum, coal products and primary metals.
Market operators had on average forecast prices would rise by 0.9 percent month-on-month.
The government statistics agency said raw materials prices leaped by 6.6 percent in March on higher priced mineral fuels. It was the highest month-on-month increase since the 7.9 percent jump recorded in September 1990 and far outstripped analysts' forecasts of a 2.0 percent rise.
Statscan said a 1.4 percent month-on-month decline in wholesaling and a 0.7 percent drop in manufacturing accounted for much of February's insipid performance. It also reported notable declines in retail trade and oil and gas exploration.
In February, weaker U.S. demand hit producers of wood products, coal and petroleum. Retail trade fell by 0.6 percent, which could be explained by bad weather in several parts of the country, Statscan said.
The U.S. Federal Reserve is widely expected to cut its key rate by 25 basis points later on Wednesday.
Bank of Canada governor Mark Carney and senior deputy governor Paul Jenkins will testify to Parliament's finance committee at 3:30 PM (1930 GMT) on Wednesday, with the chance of new insight into their views on the U.S. and domestic economies.
Statistics Canada said on Wednesday that gross domestic product fell by 0.2 percent in the month, mostly because of weak performances from wholesaling and manufacturing.
Retailers were hit by a new public holiday in Ontario, traditionally Canada's economic powerhouse, and the energy, transportation and financial sectors also declined.
Analysts had, on average, expected an increase of 0.2 percent in February, down from January's strong 0.6 percent growth rate but well above the December figure, where the economy declined by 0.7 percent.
But expectations have been falling too. The Bank of Canada last week slashed its prediction for second quarter growth to just 0.3 percent from a previous estimate of 2 percent. It cut its benchmark interest rate by 50 basis points to 3 percent.
"We are expecting the Bank of Canada to cut again on June 10 and today's weak real GDP report supports this view," Scotia Capital Research said in a note to clients.
Michael Gregory, senior economist at BMO Capital Markets, noted that GDP had contracted by an annualized 0.7 percent over the last three months, the first time this figure had been negative since November 2001.
"Canada's sturdy domestic demand is being nearly offset by the head winds coming from U.S. recession, a strong (Canadian dollar) and credit conditions," he said.
Canadian industry is battling a U.S. slowdown, high raw material and fuel prices and a strong Canadian dollar, which is boosting the cost of Canadian goods abroad.
"In all likelihood, the knock-on effects from the U.S. showdown are only beginning to be felt... (This) suggests further Bank of Canada easing is in the pipeline," said Pascal Gauthier of TD Economics.
In another sign of the pressures on the Canadian economy, Statscan said industrial product prices had increased by 1.7 percent in March from February, pushed up by a sharp rise in the price of petroleum, coal products and primary metals.
Market operators had on average forecast prices would rise by 0.9 percent month-on-month.
The government statistics agency said raw materials prices leaped by 6.6 percent in March on higher priced mineral fuels. It was the highest month-on-month increase since the 7.9 percent jump recorded in September 1990 and far outstripped analysts' forecasts of a 2.0 percent rise.
Statscan said a 1.4 percent month-on-month decline in wholesaling and a 0.7 percent drop in manufacturing accounted for much of February's insipid performance. It also reported notable declines in retail trade and oil and gas exploration.
In February, weaker U.S. demand hit producers of wood products, coal and petroleum. Retail trade fell by 0.6 percent, which could be explained by bad weather in several parts of the country, Statscan said.
The U.S. Federal Reserve is widely expected to cut its key rate by 25 basis points later on Wednesday.
Bank of Canada governor Mark Carney and senior deputy governor Paul Jenkins will testify to Parliament's finance committee at 3:30 PM (1930 GMT) on Wednesday, with the chance of new insight into their views on the U.S. and domestic economies.
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