Canadian economy continues to slip

The drop was worse than the flat showing that a consensus of economists polled by Bloomberg had been expecting.

Canada’s economy continued to shrink in May, declining 0.2 per cent – well below analysts’ expectations – as output in the energy sector fell along with manufacturing activity, adding to concerns the country is headed for another recession. More important is whether the economy can begin to recover in the second half of the year – we think it will amid an improving U.S. economy, stronger auto production, some fiscal stimulus and generous financial conditions. And after posting gains from February through April, service-providing industries declined 0.1 per cent in May. Goods-producing industries fell 0.6 percent and services 0.1 percent. Wholesale trade fell 1.0 per cent in May, but retail trade rose 0.5 per cent for the month.

But some economists say Canada hasn’t exhibited some of the classic hallmarks of a recession, citing the country’s job growth and stable employment rate.

Put another way, GDP overall has declined 0.8 per cent since December of last year, when the economy grew 0.4 per cent.

“The weakness has been largely associated with the sharp drop in oil prices that took place during the second half of 2014 and into 2015”, TD economist Randall Bartlett said in a note to investors. Non-metallic mineral products manufacturing was one area that saw output rise.

“All told another disappointing reading on the Canadian economy, though not enough to create the chance of a material downside miss versus the BoC’s already weak projection for the second quarter”, said CIBC’s Exarhos. And the federal budget, tabled as recently as April, was forecasting an economic performance for the year that’s well above what Statistics Canada data suggests is happening.

The report is a setback for Prime Minister Stephen Harper, who is poised to formally kick off an election campaign as early as Sunday and is running on his economic stewardship.