Economic recovery hits snag

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This article was published 31/1/2012 (3081 days ago), so information in it may no longer be current.

OTTAWA -- The Canadian economic recovery is showing signs of stalling, even as Ottawa prepares for an austerity budget that further slashes public-sector contributions to growth.

Statistics Canada reported Tuesday real gross domestic product actually shrank by 0.1 per cent in November, following zero growth in October.

The surprising weakness -- analysts had expected a 0.2 per cent pickup -- brings economic growth over the last three recorded months to a snail-paced 0.7 per cent.

Analysts noted most of November's weakness was due to one sector -- oil and gas extraction, in part due to temporary maintenance shutdowns -- but also pointed out there was not enough strength elsewhere in the economy to fill the gap.

"While we can brush it off as due to weakness in one sector, the fact is nothing else stepped up to the plate to offset that weakness, and that just shows how sluggish the underlying economy is," said Douglas Porter, deputy chief economist with the Bank of Montreal.

Several private-sector forecasters, including BMO, quickly downgraded their forecasts for the fourth quarter of 2011 by about half a point, saying the Bank of Canada's projection of two per cent expansion now seems out of reach.

Porter also wondered whether the federal government, which is expected to table its next budget in just over a month, should be contemplating major cutbacks. The federal government is committed to cutting at least $4 billion in the next three years -- in addition to other spending restraint -- and recent statements from ministers suggest the slashing could reach $8 billion.

Based on the lower figure, the Centre for Policy Alternatives estimates job losses throughout the country would top 60,000 over the next three years. Ottawa has also announced it would tackle old age security benefits, but is unlikely to make changes that would impact the economy this year or next.

Even before these fresh measures, Ottawa and the provinces were winding down the stimulus spending brought in to offset a global credit crisis that sparked the 2008-09 recession. With less government spending, the public sector is likely to represent a net drag to growth in 2012 as opposed to a boost in 2011.

"I can sympathize with unwinding the stimulus, I just wonder if the appetite for restraint should be as heavy as it seems to be," said Porter. "We need to make sure that growth stays on track before we start carving heavily on spending."

Union economist Erin Weir of the United Steelworkers said reduction in public investments "could push Canada's fragile economy back into recession."

The last three months of 2011 have also seen about 55,000 jobs vanish, although December was a net positive and analysts believe there was a modest employment pickup in January. Statistics Canada will issue the data on this month's jobs performance on Friday.

Most private-sector economists believe it would take an external shock, such as a full-blown European financial crisis, to tip Canada into a recession. The likely scenario is slow growth below two per cent, they say, a view shared by the central bank and the International Monetary Fund.

Some comfort can be taken that manufacturing rose 0.6 per cent, led by the auto sector, said CIBC economist Emanuella Enenajor. Other gainers were retail trade, accommodation and food services, professional services and real estate agents and brokers services.

-- The Canadian Press