Canada: Consumption Trying to Offset Weak Export Demand

Consensus Forecasts

May saw positive output-based GDP growth of 0.3% (m-o-m) following flat growth in April, led principally by a 0.5% expansion in service industries. Wholesale and retail trade soared by 1.4% and 1.8%, respectively, while the public sector also helped to support growth. Services output, helped by the resilient Canadian consumer, has taken up the slack left by a waning global environment and recent shakiness in industrial indicators. Another measure of real retail sale volumes reported a 1.9% (m-o-m) surge in May following a 0.6% advance in April. This brought the y-o-y rate up from a robust 2.4% pace to a storming 3.4% outturn. Our panel’s 2013 personal expenditure forecast remains unchanged this month. The positive spending news could help to offset the worst impact of Calgary floods and the construction strike in Quebec which undoubtedly hit economic activity in June and, consequently, Q2 as a whole. The May GDP release already reported a 0.3% (m-o-m) fall in all goods-producing industries as the energy sector took a 2% hit, dragged down by mining, quarrying, oil & gas extraction. This left industrial production as a whole falling by 0.5% and has contributed to another downgrade in the outlook for this variable. On the upside, manufacturing rose by +0.3% after a flat April showing, boosted by both durables and non-durables output. Signs of improvement in US industrial sentiment bodes well for the closely-linked Canadian sector.

June’s trade deficit narrowed from C$-0.781bn to C$-0.469bn as exports rebounded after a two-month slump. Auto and aircraft helped to boost exports, representing some good news in the face of softening emerging-market demand. However, net trade likely was a small drag on activity in Q2.

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