By Leah Schnurr
OTTAWA, April 29 (Reuters) - The Canadian economy contracted
in February after a strong start to the year, as activity in the
manufacturing and natural resource sectors declined, suggesting
that low energy prices continue to impede growth.
Data from Statistics Canada on Friday showed gross domestic
product fell 0.1 percent in the month, in line with forecasts,
after increasing for four months in a row.
While economists had expected to see some give-back from
January's unrevised 0.6 percent gain, they still expect
relatively strong growth for the first quarter overall.
"Even with that pullback in GDP this morning that was
expected ... with March coming in flat you are still looking at
3 percent (first-quarter) GDP," said Richard Gilhooly, head of
rates strategy at CIBC Capital Markets.
The persistent impact of cheap oil was reflected by
February's 0.8 percent drop in the mining, quarrying and oil and
gas extraction sector. Support activities for the industry
retreated, while extraction of non-conventional oil dropped.
Activity in the manufacturing sector also pulled back after
three strong months. Overall, activity in goods-producing
industries dropped by 0.6 percent.
Still, weakness in the energy sector is likely to be offset
by other exports over the longer-term said Craig Wright, chief
economist at the Royal Bank of Canada.
"Growth prospects for 2016 are off to a good start, and it
looks like we'll see growth in around that 2-percent range," he
said.
While growth in services was flat, the retail sector was a
bright spot, up 1.4 percent. But wholesale trade tumbled 1.8
percent, potentially foreboding weak business investment, as
wholesalers sold less machinery, equipment and supplies.
The plunge in oil prices since mid-2014 put Canada in a mild
recession last year, forcing the central bank to cut interest
rates twice.
Separately, Canadian producer prices declined for the second
month in a row in March as a stronger Canadian dollar helped
lower prices of motorized and recreational vehicles.
Prices fell 0.6 percent, short of analysts' expectations for
a gain of 0.1 percent. February's decline was revised to 1.0
percent from an initially reported decline of 1.1 percent.
Higher prices for crude energy products lifted the raw
materials index 4.5 percent. Excluding crude energy products,
raw materials prices were down 0.3 percent.
The Canadian dollar, which hit a 10-month high earlier in
the session on stronger oil prices, firmed slightly following
the simultaneous release of the GDP and producer price data.
CAD/
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Graphic - Canada monthly GDP, exports to the U.S. http://link.reuters.com/jev87s
Graphic - Canada economic dashboard http://graphics.thomsonreuters.com/15/sc-canada/index.html
Graphic - Canada producer prices http://link.reuters.com/cuj92t
Graphic - Canada economic dashboard http://graphics.thomsonreuters.com/15/sc-canada/index.html
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(With additional reporting by Fergal Smith, Ethan Lou and
Jeffrey Hodgson in Toronto Editing by W Simon)