The Canadian economy may not be handling the slowdown in the US economy (its largest trade partner) and the stifflingly high level of its currency as well as economists and traders have expected. In fact, despite the strength of its commodities sector, the world’s 14th largest economy actually contracted on an annualized basis through the first quarter of the year. According to government statistics, the economy cooled 0.2 percent through March following a downwardly revised 0.3 percent contraction in February.
The first back-to-back monthly declines in GDP since 2003 in turn depressed the quarterly number 0.3 percent for the first negative figure since the first half of 2003. Looking at the details of the quarterly report, it becomes clear that the divergent direction of the major sectors has exposed the considerable problems the US housing recession and the Canadian dollar’s record high has on economic activity in Canada. Contributing to the contraction was a a notable contraction in exports, which detracted from GDP for the third consecutive quarter. Elsewhere, businesses were struggling with capital expenditures trimming a significant 1.07 percent points of growth from GDP, while manufacturing activity slipped 3.0 percent. And, evidence that the US housing slump was crossing the boarder, residential construction in Canada detracted 0.13 percentage points from growth. Standing as the pillar for the economy, consumers lifted the annualized number 0.44 percent over the first quarter - the weakest increase since the third quarter of 2005. If the slowdown in business activity curbs employment and income, the economy could be looking at further periods of negative growth through the year.