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Weak March sours positive 1Q GDP results


There’s good and bad news with the latest report on the Canadian economy, released this morning by Statistics Canada.

On the good news side, economic activity picked up in the first quarter of 2003, as expenditure-based real gross domestic product (GDP) advanced 0.6%. This was up from 0.4% in the fourth quarter and halted the deceleration of growth over the previous three quarters. The Canadian economy once again outperformed that of the United States, where GDP advanced 1.9% in the first quarter on an annualized basis, compared with a 2.4% increase in Canada.

However, the economy lost steam over the course of the quarter, after a strong showing in January. The economy remained virtually flat in March, marking the eighteenth consecutive month that GDP did not decline.

"Lower March output was recorded in wholesale and retail trade, utilities, the financial sector and air transportation.," Statistics Canada comments in its Daily Bulletin.

Inventory levels may also be a concern. Inventory buildup was massive during the first quarter, with non-farm businesses adding a further $15.9 billion to their stocks, contributing to GDP growth in the quarter. Retail and wholesale increases of motor vehicle stocks accounted for half of the buildup. Unit sales of motor vehicles to both the personal and business sectors fell 5.6%, with truck sales dropping 9.8%. Exports of trucks, including minivans, fell by more than 10%. Manufacturers built up inventories by $3.8 billion as a result of slowing exports. There was a substantial increase as well in inventories of forestry products.

Exports slumped 1.5% following a decline of 2.2% in the fourth quarter, according to Statistics Canada.

Machinery and equipment, and industrial goods and materials were the largest contributors to this decline. Both of these groups marked back-to-back decreases, impacted by weaker US demand. Telecommunications equipment exports continued to be a source of weakness. Automotive product exports recovered slightly (+0.7%) following the sharp drop (-8.7%) in the fourth quarter. Demand for motor vehicles from the United States has declined over the last two quarters. Forestry products exports slumped (-2.8%), partly the result of continuing trade barriers at the US border. A number of factors, including the build-up and outset of war in Iraq, accounted for the significant drop in export receipts from travel. Towards the end of the quarter, SARS also impacted spending.

Imports advanced 0.6% following a small decline in the fourth quarter.

Imports of agricultural and fish products and consumer goods were the strongest contributors to this growth. Overall, automotive product imports were flat, as a sharp decline in car imports was offset by an increase in auto parts. Other consumer goods imports grew 1.7%.


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