It’s Official: Canada is in Recession
From Business Insider:
Canadian gross domestic product unexpectedly fell 0.2% in May. This was worse than the 0.0% expected by economists.
"The economy has contracted in six out of the last seven months," BNP's Derek Lindsay noted. The resource-rich economy has felt the crushing pain of falling commodity prices as global demand for raw materials has decelerated. And relief doesn't seem to be coming anytime soon.
"We continue to see falling commodities prices weighing heavily on the economy, with mining, utilities, and manufacturing presenting biggest drags on the goods side," Lindsay said. And this probably means more easy monetary policy.
"The Bank of Canada is likely to read this report as supportive of their move to cut rates at their last policy meeting earlier this month," Lindsay added. "We expect further easing ahead, as investment and exports remain in contractionary territory and the economy remains vulnerable to a correction in housing and a pullback in spending due to high levels of household debt."
Here are the specific details from Stancan:
Manufacturing output contracts
Manufacturing output contracted 1.7% in May, following no growth in April.
Durable-goods manufacturing fell 2.4% in May, as almost all major groups lost ground. Notable declines were recorded in machinery, computer and electronic products, fabricated metal products and miscellaneous manufacturing. Non-metallic mineral products manufacturing was up.
Non-durable goods manufacturing was down 0.7% in May, primarily because of declines in the manufacturing of food as well as beverage and tobacco. Decreases were also posted in textile, clothing and leather manufacturing, chemical manufacturing as well as printing and related support activities. The manufacturing of petroleum and coal products and of plastic and rubber products advanced.
Mining, quarrying, and oil and gas extraction falls again
Mining, quarrying, and oil and gas extraction fell 0.7% in May, down for a seventh consecutive month.
Oil and gas extraction fell 1.0% in May, after decreasing 3.4% in April, mainly as a result of a decline in conventional oil and natural gas extraction. Non-conventional oil extraction was also down.
Mining and quarrying (excluding oil and gas extraction) was down 0.8% in May. A decline in metallic mineral mining outweighed a gain in coal mining. Non-metallic mineral mining (which includes potash mines) was unchanged in May.Support activities for mining and oil and gas extraction increased 2.8% in May, after rising 9.6% in April, as both drilling and rigging services advanced again. The gains in April and May followed double-digit declines in the first three months of the year.
Wholesale trade falls while retail trade rises
Following a 1.6% gain in April, wholesale trade fell 1.0% in May. Declines were notable in wholesaling of machinery, equipment and supplies, miscellaneous wholesaling (which includes agricultural supplies) as well as motor vehicle and parts wholesaling. On the other hand, food, beverage and tobacco wholesaling and farm products wholesaling were up.
Retail trade rose 0.5% in May after a 0.3% decline in April, led by increases in the activities of building material and garden equipment and supplies dealers as well as electronics and appliance stores.
Construction grows
Construction grew 1.0% in May, as engineering and repair construction as well as residential and non-residential building construction advanced.
The output of real estate agents and brokers rose 2.1% in May, up for a fourth consecutive month.
Finance and insurance sector declines
The finance and insurance sector declined 0.3% in May. A decrease in banking services outweighed increases in financial investment and insurance services.
Other industries
Utilities declined 1.4% in May, down for a third consecutive month. Electricity generation, transmission and distribution as well as natural gas distribution were both down in May. Unseasonably warm weather was recorded in some parts of the country in May.
The public sector (education, health and public administration combined) edged down 0.1% in May. Declines in educational and health care services more than offset an increase in public administration.
Accommodation and food services were up 0.9% in May, in parallel with an increase in the number of overnight travelers to Canada.
Need even more evidence?
Here are Five stages of death of the Canadian dollar according to the Globe and Mail which include Denial, Anger, Bargaining, Depression and finally Acceptance...
From BMO deputy chief economist Michael Gregory and senior economist Benjamin Reitzes:
"With a view to final trimester Fed tightening this year, unmatched by the BoC, we look for the currency to continue to depreciate, averaging C$1.33 in October [meaning about 75 cents]. Political uncertainty heading into the Oct. 19 federal election and continued global oil price volatility (but along sideways trend) should reinforce the weakening trend. Presuming the absence of post-election policy uncertainty and more oil prices, we look for the Loonie to average a cent or so stronger by 2015-end."
Other news...
The top performing currency last week was the Pound Sterling (GBP) but the excitement builds this week as we may see further gains in anticipation of the three PMI’s; Construction, Manufacturing and Services. In addition, it will be the first time the Bank of England will simultaneously release its policy decision, the meeting minutes, the votes and their new macroeconomic forecasts. Early last month BoE Governor, Mark Carney, had stated that, “the British economy's strong momentum meant the decision on when to raise rates would come into sharper focus around the end of this year.” Therefore, there is a strong possibility that there will be at least one vote for an interest rate hike.
The worst performer last week was the Swiss Franc (CHF). The SNB, Switzerland's central bank, reported a loss of 50.1 billion CHF on Friday due to a policy change. Per Business Insider, the bank's foreign currency reserves underwent a major devaluation when it decided to abandon a policy to cap the value of the franc against the euro earlier this year. Since the SNB had been buying Euros to maintain an exchange of 1.20 Swiss Francs to the Euro, it pushed up the value of the Franc, devaluing the recently bought Euros.
If you’re wondering why the US Federal announcement had little impact on the on the market last week, it might be because “staff projections prepared before the June 16-17 policy meeting were inadvertently included in a computer file that was posted to the Fed’s website on June 29.”
How’s that for a spoiler! The projections saw the federal-funds rate averaging 0.35% in Q4 of 2015, then rising to 1.26% in Q4 of 2016 and finally 2.12% in the fourth quarter of 2017. That’s one hike this year and potentially four next year. The actual statement however was quite lack luster, as the central bank only made small changes to its monetary policy, being very careful not to suggest when exactly they will raise interest rates this year; September or December. A September hike is the heavy favorite among banks, analysts and traders alike, but they may have missed something…
