🚀 go-pugleaf

Growth brought to you by: The government
 
 
By Alia McMullen,August 31, 2009 

 
Canada�s government and central bank have achieved what they set out to 
do: injected life back into the economy through stimulus, stoking 
growth in June after 10 consecutive months of decline.
 
Canada�s government and central bank have achieved what they set out to 
do: injected life back into the economy through stimulus, stoking 
growth in June after 10 consecutive months of decline.
Photograph by: National Post, National Post

Canada�s government and central bank have achieved what they set out to 
do: injected life back into the economy through stimulus, stoking 
growth in June after 10 consecutive months of decline. The return to 
growth may be a welcome change, but with the economy still heavily 
dependent on its stimulus addiction, activity in the coming year will 
remain shaky until the private sector can stand on its own two feet.

Economists, like Krishen Rangasamy from CIBC World Markets and 
S�bastien Lavoie from Laurentian Bank Securities, said unemployment and 
weak export demand would likely rattle the figures until the end of 
2010 when the private sector will eventually begin to strengthen.

�[It] will take approximately twice the time for the Canadian economy 
to fully recover from the contraction experienced between the fourth 
quarter of 2008 and the second quarter of 2009.� Mr. Lavoie said.

Real gross domestic product increased by 0.1% in June, the first 
monthly increase since July 2008, Statistics Canada figures showed 
Monday. The rise signalled the economy had begun to improve as it 
entered the third quarter, the period in which the Bank of Canada and 
most economists predict the recession to have ended.

But the economy has a steep hole to climb out of. Real GDP contracted 
by a worse-than-expected annualized rate of 3.4% in the second quarter, 
while the decline in the first quarter was revised down to 6.1% from 
5.4%, marking the worst quarterly performance on record.

Mr. Rangasamy said higher government spending and improved consumption 
and residential investment offset declines in exports and business 
investment in the month. All these sectors have benefited of late from 
accommodative fiscal and monetary policy; residential investment has 
picked up amid record low interest rates of 0.25%; consumption has been 
underpinned by employment insurance benefits and government spending 
has helped support sectors of the economy.

On a quarterly basis, government spending rose 5%, annualized, in the 
second quarter, while government investment in buildings and 
engineering projects increased 4.7% for an 11th consecutive quarter.

�Overall, efforts by the Bank of Canada and governments to mitigate the 
size of the contraction did pay off in 09 Q2,� Mr. Lavoie said in a 
note.

Ryan Brecht, and economist at Action Economics said the government was 
responsible for 1.2% of total GDP in the quarter after adding 0.7% in 
the first quarter. On the other hand, business investment fell 9.7% in 
the period after a 28.1% plunge in the first three months of the year.

The stimulus has helped the service sector race well ahead of goods-
producing industries, which are still struggling heavily, noted Douglas 
Porter at BMO Capital Markets. �It�s no news flash that goods 
industries are weaker during a downturn, as they are naturally much 
more cyclical,� Mr. Porter said. �However, the divergence in 2009 is 
unheard of in the past 30 years.�

Mr. Rangasamy said GDP would likely rise about 3% in the third quarter 
and remain firm in the fourth quarter because the economy would likely 
benefit from the need to rebuild inventories both domestically and in 
the United States. However, once these inventories were restocked, the 
pace of growth would likely ease in the first half of next year, 
especially with unemployment on the rise.