Canada GDP: small bounce, won't last

Huzzah, a post that's not about Brexit (well, except for a little bit at the end).

After two months of marginal decline, Canada's GDP edged up by 0.1 percent in April, in line with analysts' expectations. Manufacturing output was 0.4 percent higher in the month, led by transportation equipment, while the ailing energy sector saw a 2.4 percent decline.  Arts and recreation spending plummeted almost 4 percent in the month, though I'm not sure what to make of the suggestion (from BMo's Doug Porter in the linked article) that this was a result of the failure of any Canadian team to reach the hockey playoffs. You might think that having a large chunk of the working-age male population chugging beer on the couch for a month would have been a drag on GDP, but that's not how Porter sees it.

If Porter's right, then the hockey-inspired impact on GDP will be repeated in May -- and indeed into early June, when the interminable playoffs finally ended.  However, that wasn't the main factor holding back growth in May.  That month was, of course, marked by the enormous wildfires in Fort McMurray, which knocked a large chunk of Canada's oilsands sector offline for several weeks. That cataclysmic event, now thankfully over, will certainly have pushed GDP into negative territory for the month, and with production only gradually returning to normal over the past month, will likely ensure at best a flat result for June also.

After a strong bounce in January, GDP fell in both February and March, meaning the economy entered Q2 in a phase of relative weakness. With only marginal growth in April and likely negative results to come for May and June, it is very likely that GDP for the whole of Q2 will show a decline.  After that, however, the full resumption of activity in the oilsands, plus the reconstruction efforts in Fort McMurray itself, should push growth back onto a moderately faster track.

As I warned you at the beginning, just a bit about Brexit. Canadian policymakers are expressing confidence that the economy will not be greatly affected by the UK's decision.  Given the very modest level of UK-Canada trade, it is indeed likely that the direct impact will be minimal. Things could get a whole lot more serious if the uncertainty the UK has unleashed starts to take a toll on the global financial system; the stock price weakness for financial institutions, including Canadian banks, is reflective of that.

Some of the bigger Canadian pension funds may also have been losing sleep over Brexit.  They have been enthusiastic buyers of UK infrastructure assets in recent years.  Right now they're just looking at a nasty FX loss. but if Brexit causes the whole UK economy to veer into the ditch, things could get a whole lot worse than that.  But that's a story for another post.