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Canada Surprise April Contraction Opens Door to 2nd Rate CutCanada Surprise April Contraction Opens Door to 2nd Rate Cut
Canada’s economy unexpectedly shrank for the fourth month in a row in April as oil and mining slumped, opening the door to a second interest-rate cut from the central bank this year. Output shrank 0.1 percent to an annualized C$1.65 trillion ($1.33 trillion), Statistics Canada said Tuesday in Ottawa. None of the 20 economists surveyed by Bloomberg predicted a decline and their median estimate was for a 0.1 percent expansion. The oil and gas, mining and quarrying group fell 2.6 percent in April, marking the sixth consecutive decline. Oil and gas extraction dropped 3.4 percent as non-conventional oil producers experienced “maintenance shutdowns and production difficulties,” Statistics Canada said. Mining and quarrying fell 3.4 percent on declines in copper, nickel, iron and coal. The first report for the second quarter shows weakness extended from the January-to-March period, when output shrank at a 0.6 percent annualized pace on a drop in energy prices and investment. The data failed to show strength in non-energy exports and consumer spending the Bank of Canada was counting on to take over as drivers of growth, and raises the pressure to cut interest rates again at the next meeting July 15. “They shouldn’t wait any longer, and proceed with a rate cut,” Jimmy Jean, a strategist in the fixed-income group at Desjardins Capital Markets in Montreal, said by telephone. “We aren’t seeing the expected recovery in the non-energy sectors.” Canada’s dollar reversed gains after the report and was down 0.2 percent to C$1.2423 at 9:15 a.m. Toronto time. Federal government bond yields declined, including five-year debt that fell 4 basis points to 0.87 percent. Struggling Factories Manufacturing fell 0.2 percent in April, with the fourth consecutive decline led by non-durable goods such as food and paper. Canada’s factories have struggled to recapture orders they lost in the 2008-2009 recession, even with the aid of a weaker currency, cheaper energy and signs of a U.S. recovery. Retailing declined 0.2 percent after a 0.3 percent gain in March, Statistics Canada said. The Bank of Canada’s April 15 economic forecast predicted gross domestic product would grow at a 1.8 percent annualized pace between April and June. Governor Stephen Poloz on Sunday likened his interest-rate cut in January to life-saving surgery following the shock of a drop in crude oil prices, saying that was a greater concern than record consumer debts. “If the doctor says you need surgery to avoid death, the side effects usually don’t deter you, you just go ahead and manage them somehow,” Poloz said during a panel talk at the Bank for International Settlements. “Other issues must be subordinate and I think of them as side effects.” Smaller Projects Lower crude oil prices and a lack of pipelines are prompting producers from Suncor Energy Inc. to Imperial Oil Ltd. to accelerate a shift to smaller projects. Crude oil is Canada’s top export. “We expect commodity prices to be range-bound for a significant period of time with West Texas Intermediate trading in the $60 to $75 range,” Steve Laut, president of Canadian Natural Resources Ltd., the nation’s largest heavy oil producer, said on a June 17 conference call. |
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