Hopes of an export-driven recovery are fading following a poor showing from externally-oriented industry in June. According to the output-based GDP report, manufacturing fell by 1.3% (m-o-m) in June after three straight months of flat growth, while industrial production declined by 0.8% following a 0.7% tumble in May and 0.6% fall in April. A drop in mining, quarrying, oil & gas extraction did not help, but it was mainly a 2.6% contraction in durables output which dictated the overall decline. GDP as a whole reported a 0.5% (m-o-m) fall in June after May’s 0.2% rise. On a quarterly basis (more of which below), net trade was a drag on growth. Moreover, the trade deficit doubled from C$-460mn in June to C$-931mn in July, due to a large drop in orders for aircraft and their components. 2013 current account forecasts remain relatively stable, however, although those for industrial production have been sharply downgraded. Still, one-off events weighing on the Q2 outturn (namely the Quebec construction strike and floods in Alberta) have left many cautious about pointing to a definitively weak trend, and consequently the 2013 GDP consensus is unchanged this month.
At odds with June GDP, Q2 advanced by 0.4% (q-o-q) on the back of a 0.5% jump in Q1 and, in y-o-y terms, maintained the previous quarter’s solid 1.4% pace. Personal expenditure was the main motor of activity, accelerating from +0.3% (q-o-q) in Q1 to 0.9% and from 1.8% (y-o-y) to 2.5%. Consumers lifted their purchases of vehicles by 4.7% over the quarter. Still, the pace of this may not be sustainable going forward. Moreover, investment was weak, inventories slowed and profits fell by 4.4% (q-o-q). With business sentiment so uncertain, this could impact on hiring intentions further down the line.
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