Canada. GDP declines

Real gross domestic product (GDP) declined 1.4% in the first quarter, the largest quarterly decrease since 1991. Both domestic and international demand continued to weaken.

Real GDP fell 0.3% in March. The declines in February and March were less pronounced than those in the preceding three months.

Lower spending in Canada and the United States, particularly business investment in plant and equipment, led to a sharp decline in Canada's exports and imports. Business investment in Canada fell at the fastest rate since 1982. Final domestic demand was down 1.5% as personal spending, particularly on durable goods, continued to decline. Corporate and personal income also fell in the quarter.

As was the case in the fourth quarter of 2008, lower production of goods (-4.0%) led the decline in the first quarter of 2009, while the production of services decreased 0.5%. All goods producing sectors retreated. The manufacturing sector, pulled down by a 26% reduction in motor vehicle and parts production, accounted for about half of the overall decline in the first quarter of 2009. Wholesale trade and transportation services declined the most among the service producing sectors. The increases in the public sector (which includes education, health and social services, as well as public administration) helped mitigate the decline in the production of services.

Real GDP contracted at an annualized rate of 5.4% in the first quarter, compared with a 5.7% decline in the US economy.

Domestic and international demand continue to weaken

Consumer spending on goods and services contracted 0.4%, a slower pace of decline than the previous quarter. Spending on durable goods (-1.8%) was the major contributor to the first quarter decline, but did not drop as much as in the previous quarter. Purchases of services slipped for a second consecutive quarter.

Exports of goods and services dropped 8.7% in the first quarter, a faster rate of decline than in the fourth quarter (-4.8%). Exports of automotive products were down for the eighth consecutive quarter, falling an additional 33%.

Imports were down for a third quarter in a row, falling 11%, as both goods and services imports declined. Weak domestic demand led to decreases in nearly all major import categories. The Canadian dollar depreciated 2.6% against its US counterpart in the quarter.

Business investment down sharply

Business investment in machinery and equipment was down 11% in the first quarter, as investment declined in all categories.

Businesses reduced investment in non-residential structures by 3.8%. A contraction in engineering construction activity was the major contributor.

Non-farm inventories fall

Non-farm inventories were drawn down for the first time since the second quarter of 2004. Manufacturers, retailers and wholesalers all lowered their inventories.

Farm inventories accumulated in the first quarter but at a much slower pace than in 2008.

Prices fall for the second quarter in a row

The price of goods and services produced in Canada fell 1.7%, following a 2.9% drop in the fourth quarter of 2008. A sharp drop in prices for natural resources drove the decline. Export prices (-6.7%) fell more quickly than import prices (-1.6%).

The price of final domestic demand edged up 0.2% in the first quarter as consumer prices remained flat.

Purchasing power declines

Real gross domestic income (GDI), a measure of Canada's purchasing power, fell 3.0% in the first quarter (-6.2% year over year). Canada's terms of trade, a measure of export prices relative to import prices, deteriorated for the third consecutive quarter as commodity prices fell and the Canadian dollar depreciated relative to its US counterpart. As a result, the decline in real GDI was much sharper than real GDP; the third consecutive quarter this has occurred.

Economy-wide incomes down sharply

Nominal GDP decreased 3.0% in the quarter, a second consecutive sharp drop. Corporate profits fell 24% in the first quarter following a similar decrease in the fourth quarter of 2008. Both financial and non-financial industries posted lower profits.

Labour income (in nominal terms) fell 0.7% in the first quarter. Employment was down (-1.4%) as were average hours worked. Wages and salaries in goods producing industries led the decline, particularly the manufacturing and construction industries.

The personal saving rate was 4.7%, similar to the previous quarter. Prior to the fourth quarter of 2008, the personal saving rate had been below 4% for 10 consecutive quarters.

Gross domestic product by industry, March 2009

Real gross domestic product declined 0.3% in March after a 0.1% decrease in February. The declines in February and March were less pronounced than those in the preceding three months.

The output of the energy and manufacturing sectors were the main sources behind the March contraction. Lower activity in wholesale trade, construction, transportation, accommodation and food services, and forestry added to the weakness. The finance and insurance sector, the public sector (health, education and public administration combined), retail trade, and mining excluding oil and gas extraction all advanced.

The output of the energy sector fell 1.9% in March. A significant drop in support activities for oil and gas extraction along with a 1.5% decrease in oil and gas production lowered output in the sector. Both the extraction of natural gas and petroleum decreased.

The output of the mining sector excluding oil and gas extraction increased 1.1% in March. There was a partial rebound in potash production as the industry continued to adjust its output to weakened demand. Despite a significant contraction in iron ore mines as the demand for steel products continued to retreat, the output of metal ore mines increased on the strength of copper and nickel extraction.

Activity in the manufacturing sector retreated 1.0% in March, continuing its downward trend. Both durable and non-durable goods manufacturing fell. Of the 21 major manufacturing groups, 15 retreated. Machinery, primary metal products and motor vehicle parts manufacturing led the reduction in durable goods. Motor vehicle production grew for a second consecutive month.

The volume of activities in wholesaling industries declined 0.7% in March, mirroring the decrease in exports and imports. The most notable drop was in the wholesaling of machinery and electronic equipment. The wholesaling of automotive products moved ahead. Value added in retail trade edged up 0.3%.

Construction activity decreased 0.4% in March. The drops in residential building construction and engineering and repair work eclipsed the increase in non-residential building construction.

The finance and insurance sector rose 0.4%. The gain was mostly attributable to an increase in the volume of trading on the stock exchanges. The gain was partially offset by a fall in mutual fund sales.

Source:Statistics Canada, June 1, 2009

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