Sunday, August 2, 2015

Canada's GDP Shrinks By 0.2% in May, What Does It Mean For Ontario's GDP?

With news that Canada's GDP shrank by 0.2% in May, the fifth month of decline in a row, a really strong June GDP number would be needed for Canada to avoid a technical recession of two negative GDP quarters in a row.

Some have blamed bad weather for the decreases in the first quarter, but that clearly can't be the case for April and May. The US declined by 0.2% in the first quarter, but the latest GDPNow forecast from the Atlanta Fed has a prediction of US GDP second quarter growth of 2.4%, so the US seems to be diverging from Canada.

In the first quarter Canada's GDP declined 0.6% annualized compared to Ontario's decline of 0.2%. So there wasn't that big a difference despite the oil price decline causing a lot of the overall Canadian decline. Thus if Canada's second quarter GDP is slightly negative, Ontario's will likely not be that much stronger, despite the low dollar. That means that the Ontario budget's prediction of 2.7% GDP growth for 2015 will be far higher than what we actually get, barring incredibly strong growth in the second half of 2015.

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