July 30, 2010

Canadian GDP advanced 0.1% in May Canadian economy slowing in Q2

Real GDP (chained dollars)
1.0 % m/m
Latest: 0.1% (actual) +0.2% (expected)
0.8
Previous: 0.0% (no revision)
0.6

0.4
FACTS: Real GDP increased 0.1% in May after remaining
0.2
essentially unchanged one-month earlier. Activity was up in
the goods producing sector (+0.6%), marking a ninth 0.0

consecutive monthly increase. The mining and oil & gas -0.2
extraction (+3.4%) and agriculture (+1.3%) industries were -0.4
Shading = Canadian recession
the top performers among goods-producing industries while
-0.6
construction (-1.6%) and utilities (-0.5%) lagged. Industrial
production was up 1.2%. Production in non-durable -0.8

manufactured goods increased 0.8% while durable -1.0

2004 2005 2006 2007 2008 2009 2010
manufacturing industries retreated (-0.4%). Energy An economy well positioned to benefit from economic
production jumped 2.4% in May. The service sector activity growth in emerging markets
was down 0.1%, registering a second consecutive monthly GDP at basic prices
8 Mining and O&G
drop, with wholesale trade (-1.8%) posting the largest 3 month change %
extraction
7
decline. Transportation & warehousing (+0.5%) and Arts, 6
entertainment and recreation (+0.5%) showed the strongest 5
increase. 4
3
2
1
OPINION: For a second month in a row, the Canadian 0
-1
economy is growing at a rate below its historical average. The -2
service sector posted a second consecutive monthly -3
Construction
decrease a first since 2003 when excluding the latest -4 Shading = Canadian recession
-5
recessionary period. On that front, we have to keep in mind
-6
that the service sector is in an expansion phase which began -7
in September 2009 and is growing at a respectable 3% -8
2006 2007 2008 2009 2010
annualized growth rate since then. Mining and Oil and gas
extraction is clearly the “sector of the month”, and the recent
trend is representative of how strong global growth coming Total hours worked allow us to be optimistic
from emerging markets is benefiting the Canadian economy Real GDP at basic prices and total hours worked (q/q, annualized)
Total hours
(middle chart). On a negative note, construction and real 8 % q/q, ann.
worked
estate are showing their first signs of weakness, which are in 6
part due to a front loading of activity. With two months of data 4
in the quarter, the GDP growth is already running at a rate of
2.2%. We expect the economy to show decent growth in 2

June. Recall that 225K jobs were created in the second 0

quarter with total hours worked up a solid 4.7% (and wage bill -2
advancing 6.2%). Canadian growth should be in the
-4
neighbourhood of 3% in Q2 in line with what the Bank of GDP so far
Canada released in its latest monetary policy report. As a -6 in the
quarter
result, this morning’s report on Canadian GDP does not alter -8
our view on Canadian interest rates.
-10

-12
Matthieu Arseneau 1998 2000 2002 2004 2006 2008 2010

ECONOMIC AND STRATEGY GROUP – 514.879.2529

Stéfane Marion, Chief Economist and Strategist
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