July 7, 2008

GDP numbers don’t reflect recession, Flaherty says

OTTAWA

Canada appears to have skirted a technical recession, posting a solid if unspectacular 0.4 per cent gain in its gross domestic product in April that will likely keep the economy above water this quarter.

The advance was slightly above what economists generally expected and reverses two straight monthly declines that contributed to overall annualized 0.3 per cent retreat in GDP during the first quarter.

Finance Minister Jim Flaherty said in a telephone interview he was encouraged by the turnaround in April and predicted that Canada will avoid a recession, which is technically defined as two consecutive quarters of economic decline.

“(A recession) is not what I’m seeing in a numbers and it’s not what I’m hearing from people...What I’m hearing from people is concern about high gas prices,” he said.

“There’s no question there was concern with respect to the first quarter, but on analysis it was explainable with what happened to the auto sector, including a specific strike at a parts manufacturer (American Axle) in the United States.”

Flaherty said he was also concerned that Canadians had been exposed to too much gloomy economic news from the United States and that might dampen consumer confidence, but added he was encouraged to see the latest numbers show consumer spending holding.

In retrospect, economists blamed an unusually harsh winter for keeping consumers out of stores during the previous two months as retail sales picked up in April.

April’s rebound was widely spread, led by the troubled manufacturing sector, particularly autos, wholesale and retail sales, agriculture and the service sector.

The manufacturing sector was the biggest surprise, growing 1.9 per cent, with motor vehicle production increasing by seven per cent.

Wholesaling picked up 2.1 per cent, while the retail trade sector rose 0.6 per cent.

But economists warned that the economy was not out of the woods yet.

“One month does not a trend make,” cautioned CIBC World Markets economist Avery Shenfeld.

“It still leaves the second quarter headed for only lacklustre growth overall.”

The continued run-up in energy prices and renewed concern about U.S. credit markets point to subdued growth for the rest of the year, said Douglas Porter, deputy chief economist with BMO Capital Markets.

“The firmer-than-expected gain in April was not quite enough to full reverse the February and March declines,” Porter said.

Most economists are now forecasting a growth rate of under one per cent in the second quarter, which ended Monday, and not much better for the rest of the year.

Canadian Press

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