Thursday, June 4, 2009

Q1 GDP decline worst since 1991

Canada suffered its largest quarterly drop in GDP in 18 years, according to figures released Monday.

Statistics Canada said the gross domestic product — essentially the country's income — fell by 1.4 per cent for the first three months of 2009 as companies stopped spending on new equipment because of the global recession.

That means that the country's performance for the January to March period was the worst since 1991.

Q1 GDP decline worst since 1991Canadian exports continued to slip in the first quarter this year.(Canadian Press)

For March, real GDP — once inflation is subtracted — fell by 0.3 per cent.

Companies spending less was a big problem, Statistics Canada said.

"Business investment in Canada fell at the fastest rate since 1982," said the statistical agency in a press release.

Statistics Canada estimated that spending on business equipment fell by 35.7 per cent in the first three months of 2009 versus the fourth quarter of 2008.

Firms have seen profits disappear and domestic demand stall as the worldwide credit crunch last fall became a full-blown recession by the winter.

Worst GDP categories (annualized rates) Q1 (%)Business equipment -35.7 Exports -30.4 Before-tax corporate profits -67.0 Residential investment -21.0 Source: BMO Capital MarketsWeak spending

Domestic demand, which makes up approximately two-thirds of Canada's economic activity, also weakened, down 1.5 per cent as individuals reduced their spending.

Canadians spent 0.8 per cent less in the first quarter of 2009 versus the same period one year earlier.

The country's trade picture also looked pretty bleak. Exports in the quarter were down 30 per cent versus the first three months of 2008.

In addition, imports were also off 37.8 per cent in the first quarter. Economists argue that the level of purchases from foreigners should rise during a recovery.

Thus, the poor showing by the import sector is more evidence that Canada's recovery remains moribund, experts say.

Yearly slide

If you calculated the first quarter's decline as an annualized figure, Canada's GDP would fall 5.4 per cent for the 12 months.

Still, that slide appeared to be a better result than some economists had predicted.

Economists had pegged the country's annualized loss in the first quarter at 6.5 per cent.

"While it's tough to put such a deep drop in GDP in a good light, there are some positives here," said Doug Porter, an economist with BMO Capital Markets.

He pointed out that only France managed to turn in a better GDP quarterly performance than did Canada. In addition, earlier in the year, some analysts were calling for Canadian income to drop by more than seven per cent, Porter said.