1 September 2006

Economic Update from Canadian Chamber of Commerce

The following is extracted from an update from the Canadian Chamber of Commerce.

Canada's economy slowed in the second quarter of 2006 as real gross domestic product (GDP) advanced 0.5% (quarter-to-quarter), following a robust 0.9% increase in the first quarter. This slower growth reflected reduced but sustained growth in consumer spending and business investment in plant and equipment as well as a cooling in the housing market.

Exports fell 0.3%, adding to the decline in the first quarter. This slump in foreign demand was reflected in manufacturing output, which weakened further in the quarter. Production slid among export driven manufacturing industries including motor vehicles and wood products manufacturers, as well as selected non-durable industries. Imports rebounded following a weak first quarter, as the Canadian dollar appreciated. The strength in business investment accounted for much of the increase, as imports of machinery and equipment advanced….

Manufacturers also added to their stocks at a faster clip in the quarter. Retail inventories posted a third consecutive quarter of strong accumulation - both motor vehicle and other durable goods inventories were built up, reflecting softer consumer demand in these areas.

The bottom line: Annualized GDP growth in the second quarter of 2.0% was sharply down from the surprisingly strong 3.6% reading in the first quarter. This is considerably below the Bank of Canada's latest projection of 3.2% for the quarter. This outcome should cement the view that Canada's central bank will hold interest rates unchanged for the rest of 2006.