July 9, 2008

Canadian Economy

GDP up slightly, but construction still on the decline

RICHARD GILBERT

staff writer

The Canadian economy showed signs of recovery in April, while the construction industry experienced a second consecutive month of decline.

Statistics Canada released a report on Real Gross Domestic Product (GDP) by Industry that stated real GDP increased by 0.4 per cent.

The slight recovery of the economy in April should not be seen as an end to a short period of economic decline in Canada.

“However, the strength of this report may be overstated,” said Eric Lascelles, chief economics and rates strategist with TD Securities.

“Importantly, the month is really just an inevitable bounce-back after a string of unsustainably weak outcomes. Three of the prior four months recorded outright declines in GDP, and even with this latest increase, Q2 GDP appears on track for a performance that is likely to remain shy of 1 per cent annualized.”

Overall economic activity declined for two consecutive months in March (0.2 per cent) and February (0.3 per cent). Real GDP edged down by 0.1 per cent in the first quarter of 2008, which was the first quarterly decline since the second quarter of 2003.

The economic rebound was based on the recovery of manufacturing, which increased by 1.9 per cent after declining in March (2.4 per cent) and February (1.1 per cent).

“Although the growth was significant and broadly based, it was not large enough to offset the drop in March,” said the Statistics Canada report.

“Notable rebounds were recorded in the production of motor vehicles as well as in petroleum and some chemical products. Additional momentum came from increased production of machinery and primary metals.”

While the economy in general expanded, construction activity decreased 0.7 per cent in April and 0.2 per cent in March.

According to Statistics Canada both residential and non-residential building construction receded, while engineering and repair construction remained virtually unchanged.

Within the residential sector, construction of new single family dwellings declined for a fifth consecutive month.

In contrast to this trend, the construction of apartments rose for a third consecutive month.

“The weakness in construction was relatively broadly based, although it was pointed out that recent increases in non-residential building permits augur well for growth in this component going forward that will provide some offset to likely further weakening in residential construction activity,” said Paul Ferley, assistant chief economist with RBC Economics Research.

Statistics Canada said the nominal value of building permits issued for non-residential buildings increased significantly in April, notably in the case of commercial buildings. This should translate into higher construction activity in the coming months.

“The pace of growth in the second quarter, although positive, is not likely to be particularly robust because of some less transitory restraining factors, such as a weak U.S. economy,” said Ferley.

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