OTTAWA – Canada’s economy is proving somewhat resilient against global economic turmoil, recording a surprisingly perky 0.3 per cent gain in April that points to continuing — if modest — growth.
Analysts said Friday that April’s performance, while above the consensus estimate of private sector economists, stemmed largely from strength in the resource sector that may not be sustainable at such heady levels.
But they also noted that the monthly gain likely sets up the economy for second-quarter growth of about two per cent when all the numbers for the April-June period are in, about the same or slightly stronger than the first quarter.
Finance Minister Jim Flaherty said he was “pleased” with the result, while stressing the economy still faces headwinds from abroad.
“April’s economic growth and the nearly 760,000 net new jobs created since July 2009 are positive signs we are on the right track,” he said in a call from Ireland. “But we are also cognizant that the challenges of weaker global growth and financial turmoil persist.”
A bigger development for the long-term viability of the Canadian recovery came from Brussels earlier in the day with news that European leaders had agreed to direct emergency funding of troubled banks. The breakthrough means that highly indebted national governments need no longer carry the bank bailout packages on their books, with the resulting improvement to their fiscal positions.
Flaherty said if the details agree with the headlines, the EU has taken “significant strides” toward containing the continent’s debt problems.
Markets in Europe and North American rebounded on the announcement, while yields on Spanish and Italian government bonds fell back sharply, easing pressure on their budgets.
Canada’s economy has felt the pinch from Europe’s problems, but has also stayed above water thanks in part to strong commodity exports.
April’s performance showed that Canada’s resource sector remains the most reliable engine of growth, even in bad times.
Mining and oil and gas extraction bounced back 2.7 per cent in April after declines of 2.0 per cent in February and 1.1 per cent in March.
The rebound had been expected since setbacks in the previous two months were mostly due to temporary maintenance and production difficulties. Economists cautioned that such a strong pace of growth from the sector is unlikely to be sustained going forward.
“Given the temporary factors at play, this magnitude of out-sized growth in this particular sector will not likely be repeated in the months to come,” said Sonya Gulati, a senior economist with TD Bank.
Other sectors were less impressive and some downright discouraging.
Retail trade, manufacturing, construction, accommodation and food services and the public sector declined.
Jimmy Jean of Desjardins Capital Markets said the 0.8 per cent decline in retail trade was the largest in more than a year and the third monthly contraction for that part of the economy so far in 2012.
Since consumer spending has been an area of strength through much of the recession and recovery, the decline in retail trade adds to signals that Canadian shoppers may be more cautious in future.
“Overall the report is less spectacular than the headline,” Jean said.
Still, the month’s output marked the first time this year the economy had grown at a pace above two per cent annualized, and set the economy on pace for a slight improvement on the first quarter’s 1.9 per cent increase.
CIBC said it was still possible to attain a growth rate of 2.5 per cent for the quarter, which would be in line with its own and the Bank of Canada’s expectations.
In another piece of encouraging news, the Conference Board of Canada reported its help-wanted index gained 1.1 percentage points in May, a good indicator for future hiring.
In general, Canada’s economy has underperformed expectations in the first half of this year, due mostly to external factors, including the ongoing debt crisis in Europe and slower than expected momentum in the United States and emerging economies, particularly China.
Several forecasting houses have recently downgraded expectations for the economy to about two per cent for the year, and some believe 2013 will be even weaker.
However, TD Bank chief economist Craig Alexander pointed out this week that too many are discounting the possibility that the economy could offer up some good surprises, particularly if the clouds of risk over Europe begin to clear.