Canada's Economy Contracts in 1st Quarter

While the US economy seems to be stuttering along at slightly less than 1% GDP growth, the Canadian economy contracted in the first quarter, missing economic forecasts. The Globe and Mail reports:

Canada's economy contracted in the first quarter of the year, the first time in five years that the country's output shrank outright.

Real gross domestic product declined a harsh 0.3 per cent at an annualized rate, exposing an economy far weaker than economists' projections of 0.5 per cent growth in the first three months of the year.

Canada's contraction stands in stark contrast to the 0.9 per cent expansion registered for the first quarter in the United States, where recession fears weigh heavily.

The major weakness is from auto manufacturing, which is a large component of the economy. Stripping out the auto portion, the economy expanded marginally.

Major cutbacks in manufacturing activity, especially in the auto sector, were behind much of the poor performance, Statistics Canada said Friday, but bad weather was also to blame...

Much of the weakness in economic output at the beginning of 2008 was because the automotive sector was drawing down on inventories that had been accumulating for the previous two quarters, Statscan said. A strike at a parts manufacturer in the United States, American Axle, was also a factor.

Excluding the auto sector and its ripple effects elsewhere in the economy, output expanded ever-so-slightly from the previous quarter, the agency said.

Declines in manufacturing, mining and some parts of the transportation sector were only partially offset by increased activity in retail, accommodation services, finance and insurance.