OTTAWA – Canada’s economy shrank by 0.3 per cent in May, the second consecutive month without growth, with slumps in mining, and oil and gas production leading the downturn.
Statistics Canada said Friday the shrinkage comes on the heels of a stagnant April. The last rise in the real gross domestic product was the increase of 0.3 per cent recorded in March.
Mining, oil and gas extraction, manufacturing and construction all fell in May.
There was growth in the wholesale and retail trade, the public sector and utilities as well as the finance and insurance sector.
CIBC World Markets economist Emanuella Enenajor called the fall in GDP “disturbing” and said it doesn’t bode well for the next quarter.
“Overall, a very weak report, suggesting second quarter GDP will not likely come close to our prior call of 1.6 per cent or the (Bank of Canada’s) call of 1.5 per cent,” she said in a note.
“A negative for stocks and the Canadian dollar, supportive for fixed income, particularly at the short end.”
Mining and oil and gas fell 5.3 per cent in May after two consecutive monthly increases, Statistics Canada said in the report.
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Wildfires in northern Alberta and bad weather, as well as maintenance shutdowns, reduced oil and gas by 4.2 per cent.
Manufacturing fell by 0.4 per cent, with production of non-durable goods off 1.4 per cent. Production of durable goods increased 0.4 per cent.
Production of motor vehicles and parts fell 0.5 per cent in May, after a larger slump in April, which was blamed on the after-effects of the Japanese tsunami.
However, production of computer and electronic products, chemicals and machinery rose.
Construction slipped 0.3 per cent as declines in engineering, repair work and non-residential construction outweighed an increase in home building.
Wholesale trade advanced 1.0 per cent, with growth in machinery and equipment as well as agricultural supplies. Wholesaling of petroleum products and motor vehicles was down.
Retail trade grew by 0.2 per cent with higher sales at building material and garden equipment stores and general merchandise stores.
Work on the 2011 census helped drive public-sector growth, the statistics agency said.
BMO Capital Markets deputy chief economist Douglas Porter said with this weak report, growth for all of the second quarter will struggle to get much above a 0.5 per cent annual rate, well down from 3.9 per cent in the first quarter.
“Canada’s economy was hit by one thing after another in the spring, and it now faces yet another hurdle from the deepening uncertainty emanating from the U.S. debt drama,” Porter wrote in a research note.
“While we believe that the most likely outcome is a mild pick-up in growth over the second half, the starting point is even weaker than we expected and there are still clearly plenty of potential dangers lurking ahead for the economy,” he said.
Porter also said he doesn’t expect the Bank of Canada to raise interest rates as a result of the weak growth.