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Canada’s first Reading of negative GDP figure

It seems that the Bank of Canada’s bet is not working out as planned (maybe), GDP growth that was expected to be more sluggish in the second half of 2010 is turning out to be downright terrible.  It is difficult to blame the BoC, but it remains that Canada’s economy appears to be decelerating rather dramatically, from a 5.8% GDP reading for the first quarter of 2010, to a negative reading of 0.1% for July.


The biggest negative contributors were manufacturing, retail and wholesale trade, construction and forestry.  Confirming that Canadians, although clearly out of recession, are still spending as if they were in a recession.  The sectors which did the best were mining and to some extent the financial sector.  It must be pointed out that the success of our resource economy has little or nothing to do with the health of Canada’s economy; these numbers are entirely driven by foreign factors. 



Manufacturing decreased 0.7% in July, with 11 of the 21 major groups retreating. Manufacturers of non-durable goods reduced their production by 0.9%, in particular those of pharmaceutical and paper products. Manufacturing of durable goods decreased by 0.5%, notably of furniture, metallic and non-metallic products. Increases in the production of food and beverages and motor vehicle parts tempered the decrease in the manufacturing sector.

In the first quarter of 2010, Canada’s GDP grew by 5.8%, followed by a second quarter performance of 2.0%, now the first preliminary results for the third quarter are beginning to emerge, and the performance for that quarter are beginning to look like a sub 1% performance (4th quarter GDP tends to be slightly stronger due to seasonality), still the first half contributed a GDP growth of 3.9%, while the second half is looking increasingly difficult to predict.  It is now possible that my 3.2% target GDP growth for Canada in 2010 may be a little to optimistic, especially if the third quarter stays around zero growth, which would imply that by the end of the third quarter’s Canada’s growth rate may be around 2.6% for the year….

This will have an impact on Canada’s trade deficit (reducing imports), but will have virtually no impact on the CAD, since the currency is now entirely driven by the price of oil.  On thing for sure the BoC’s next 0.25% increase in interest rates would appear to be on hold.

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