Canada’s economy rebounds with 2.3% GDP growth

OTTAWA – Canada climbed out of the recession that knocked the economy into reverse over the first half of 2015 — but the rebound quickly showed signs of lost momentum.

Statistics Canada said Tuesday the country’s real gross domestic product grew at an annualized rate of 2.3 per cent during the three-month period that ended in September. The GDP received boosts from improved performances in exports and household consumption, the federal agency said.

But the economy also contracted by 0.5 per cent at a non-annualized rate in September — a decrease largely linked to the country’s hobbled manufacturing and natural resources sectors.

That September reading followed GDP growth at a non-annualized pace of 0.3 per cent in July and 0.1 per cent in August.

“The third quarter came in like a lion but went out like a lamb,” CIBC chief economist Avery Shenfeld wrote Tuesday in a research note to clients.

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Earlier this year, the economy fell into the technical definition of a recession after it recoiled for two straight quarters. It decreased by a revised annual pace of 0.7 per cent over the first three months of 2015 and again by 0.3 per cent in the second quarter.

The September slide, however, means the October GDP reading suddenly became significant in determining how much the weak handoff could affect the fourth quarter.

“October will be pivotal,” said Desjardins senior economist Jimmy Jean.

“If we see another contraction, that would almost certainly put the whole quarter into negatives. That would spell a double dip in terms of GDP growth returning to contraction.”

Jean added that a below-zero reading for the fourth quarter could force the Bank of Canada to lower its trend-setting interest rate in the new year.

The September GDP number was dragged down by the weight of declines in sectors such as manufacturing, mining, quarrying and oil and gas extraction, Statistics Canada said. Oil and gas alone fell 5.5 per cent that month, while manufacturing dropped by 0.6 per cent after three straight months of increases.

The overall third-quarter reading came in close to expectations. Economists had expected growth of 2.4 per cent for the third quarter, according to Thomson Reuters.

Statistics Canada said the economy registered 2.7 per cent growth in the exports of goods, led by increases in motor vehicles and parts as well as consumer goods and crude-oil bitumen.

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Household spending, meanwhile, grew by 0.4 per cent in the third quarter, the agency said.

The economy’s struggles — led by the deep, negative impact of stubbornly low oil and commodity prices — have forced experts to repeatedly downgrade their growth forecasts for Canada.

Last month, the federal government’s fiscal and economic update contained average forecasts made in October by a group of private-sector economists. They predicted a 1.2 per cent increase in real GDP — a common measure of economic growth — for 2015 as a whole, down from an April estimate of two per cent.

In October, the Bank of Canada predicted the economy to expand by 2.5 per cent in the third quarter and 1.5 per cent in the fourth.

The central bank has projected growth of 1.1 per cent for 2015 as a whole and two per cent for 2016.

The Bank of Canada, which cut its key interest rate twice this year to cushion the economy from the major drop in oil prices, is scheduled to make a rate announcement Wednesday. It is widely expected to hold its trendsetting rate at 0.5 per cent.

The weaker economic conditions have put pressure on the new Liberal government’s election promises, which include big-ticket spending for projects like infrastructure that it says will produce jobs and growth.

Even with billions in spending commitments, the Liberals committed to keep annual deficits under $10 billion over the next two years, generate a shortfall of only $5.7 billion in the third year and balance the books in time for the next election in 2019.

But the Liberals announced in their fiscal update last month that they inherited federal books from the Conservatives that will drive the country billions of dollars deeper in the hole than expected, raising doubts they will meet all their fiscal goals without changing some of their plans.

A report from the parliamentary budget office on Tuesday said the federal government’s medium-term deficits, after the current financial year, will likely be billions of dollars higher than what was predicted in “optimistic” Liberal forecasts.