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Canadian economy contracts for the third consecutive month

Published by Brad Fougere on May 30, 2015

Manufacturing GDP notes – March 2015

The impact of falling oil prices and a weaker-than-expected US economy are weighing more heavily on the Canadian economy than initially expected. The economy shrank for the third consecutive month in March, contracting by 0.2 per cent over February levels. Losses were heaviest in the mining, oil and gas sector, where GDP fell by 2.6 per cent. GDP also fell in utilities and in accommodation and food services, as Canadians began to cut back on non-essential spending. Construction activity was also down in March, reflecting in part the slowdown in energy-related capital investment.

As a result, the first quarter of the year saw Canadian GDP fall by 0.2 percent compared to the final quarter of 2014. That decrease marks the first time the Canadian economy has shrunk on a quarterly basis since the 2008-2009 recession.

While energy, construction and non-essential services activity fell, there were some positive notes for the Canadian economy in March. GDP in trade, transportation, and financial and professional services all posted gains.

For its part, the manufacturing sector was able to eke out a modest increase in GDP in March after posting sharp losses in three of the previous four months. Manufacturing GDP increased by 0.1 per cent compared to February. For the first quarter of the year, however, the manufacturing sector shrank by 0.8 per cent compared to the final quarter of 2014 – four times the decrease in overall Canadian GDP.

On the bright side, the manufacturing sector is still performing relatively strongly on a year-over-year basis. Manufacturing GDP in the first quarter of 2015 was 2.2 per cent higher than the same quarter last year, slightly above the all-industry average. Unfortunately, these numbers are likely to fall in the coming months because the manufacturing sector will have to post strong gains in the coming months to keep pace with its solid performance last spring and summer.

The modest increase in manufacturing GDP in March was led by a rebound in motor vehicles and parts production, which had plunged in February due to temporary closures in Ontario production plants. GDP in the auto sector rose by 3.5 per cent in March. Unfortunately, this increase was not enough to offset recent losses; auto sector GDP is down 8.5 per cent since December.

Petroleum refiners also recovered in March, as production capacity came back online in New Brunswick. GDP in petroleum and coal refining rose 2.8 per cent compared to February. Forest products and food processing industries also saw positive growth in March.

On the negative side, the impact of slower auto sector activity and a sharp decrease in energy capital investment are starting to filter through the supply chain. The fabricated metals industry saw a sharp drop in value-added output as GDP fell by 3.4 per cent for the month. That decrease marks the third consecutive month-over-month decline in economic activity in that sector. Similarly, machinery production also fell for the third consecutive month, posting a 0.8 per cent decline in March.  

Found in: StatsCan

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