November 10, 2008

Economists expect Canadian economy to slip into recession early in 2009

Richard Gilbert

staff writer

The Canadian economy is expected to slip into a recession in the next few quarters, after both construction activity and national output declined in August.

After the Canadian economy experienced strong growth of 0.7 per cent in July, Statistics Canada released a report that said real gross domestic product contracted by 0.3 per cent in August.

According to the report, the main contributors to the decline in August were wholesale trade (3.1 per cent), manufacturing (1.1 per cent) and the energy sector (0.5 per cent).

The decline in these sectors was preceded in July by hefty growth of 1.9 per cent in wholesale trade, 1.3 per cent in manufacturing and 2.7 per cent in the energy sector.

“Summer has come and gone, and, as if in tune with the cycle of seasons, this morning’s August GDP report was much more sombre,” said TD Economist Pascal Gauthier.

“In our view, it unfortunately is also more indicative of what is to come in the next few quarters.”

Construction also contracted 0.3 per cent in August, after being unchanged in July.

“Residential and non-residential building construction as well as engineering and repair work declined,” said the report.

“The continuing decrease in single-family house construction more than offset increases in multi-unit structures. Construction of non-residential buildings fell, with weakness in all types of structures in recent months.”

An economist from BMO Capital Markets agreed that the see saw pattern of these sectors does not bode well for the future.

“This result simply unwinds part of July’s surprising strength, and would normally be seen as no big deal,” said Douglas Porter.

“However, given the marked deterioration in the economic outlook since that time, it unfortunately will look like a loud early warning shot.”

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