Second quarter sees 1.6 percent annualized decline in Canadian GDP

In contrast to the first quarter when the Canadian economy grew by an annual rate of 2.5 percent the second quarter turned in a dismal performance with a decline of 1.6 percent at an annualized rate.

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This is the worst performance of the Canadian economy in the last seven years according to Statistics Canada. The decline was in large part due to the wildfires in northern Alberta that burned parts of Fort McMurray. The second quarter of 2009 when Canada was in the midst of the global financial crisis was the last time the economy saw such a large drop. However, economists had predicted a drop of around 1.5 percent, not too far off the actual result.

Avery Shenfeld of CIBC Capital Markets said: "It wasn't pretty, but it wasn't expected to be." Exports of goods and services fell by 4.5 percent after a rise of 1.9 percent in the first quarter. The fires near Fort McMurray had forced the shutdown of several oilsands operations. Statistics Canada said that excluding the large drop in crude oil output, the country's GDP would have increased by 0.1 per cent (0.4 per cent annualized). Exports of goods declined 5.5 percent while exports of services rose by a modest 0.6 percent. Exports of aircraft and other transportation equipment actually rose by 5.6 percent. One silver lining in the downturn is that in June GDP rose by 0.6 percent more than the 0.4 percent economists predicted. Mining, quarrying and oil extraction in June had risen by 3.6 percent. Energy product exports fell 7.5 per cent, with crude and bitumen exports declining 9.6 per cent and refined petroleum products down a whopping 19.6 per cent

Shenfeld said: "All told, a quarter we will like to forget, and for the next few months, a more supportive Q3 will help us do just that." The Bank of Canada predicts that growth will pick and also expects that the new child benefit program will boost consumer spending along with increased government spending on infrastructure. The second-quarter result reported Wednesday was worse than forecast by the Bank of Canada in its July monetary policy report. The central bank had predicted that the economy would contract at an annual rate of one percent during the second quarter due to the damage caused by the wildfires. Shenfeld also noted: "The best news [in the GDP report] was that June GDP rebounded ... and less than half of that [growth] came from the rebound in mining/oil/gas, as manufacturing also had a healthy gain."

Other economists were also optimistic about at least some improvement. BMO chief economist, Douglas Porter, said: "We knew for the past four months that today's GDP report was going to be ugly, and it delivered with a capital U. Looking beneath the headline drama, underlying growth continues to stumble along at little more than a one per cent [annual rate] pace, but we continue to expect that to improve in the coming year as the drop in energy investment ebbs."