OTTAWA — Canada’s economy sank further into contraction in May, shrinking for a fifth straight month as the oil shock takes its toll on the energy producing nation.
The five-month decline marks the longest slump since the 2008-2009 recession, and virtually guarantees output shrank for a second straight quarter. The reading vindicates Bank of Canada Governor Stephen Poloz’s July 15 decision to cut borrowing costs for a second time this year.
Gross domestic product fell 0.2 percent during the month, bringing the decline since the start of the year to 0.8 percent. Economists surveyed by Bloomberg News projected no change in May output.
“This was a very disappointing print and opens up the downside risk to the Bank of Canada’s forecast,” said David Tulk, chief macro strategist at Toronto-Dominion Bank, adding the slump is looking even deeper than a technical recession, defined by economists as two consecutive quarterly declines in output. “The breadth of declines are starting to increase.”
To avoid a second-quarter contraction, the economy would have had to expand at least 1 percent in June, something that hasn’t happened in more than a decade, the agency said.
The report is a setback for Prime Minister Stephen Harper, who is poised to formally kick off an election campaign as early as Sunday and is running on his economic stewardship.
In an interview Wednesday in Ottawa, Harper played up the outlook for the nation’s economy, claiming the recent oil shock will have only a temporary impact and the country is poised to return to the top of the Group of Seven’s growth charts.
Harper said he expects the contraction in the first half of this year will be mild.
The currency extended declines on Friday’s report, dropping as much as 0.7 percent to C$1.3094 versus its U.S. counterpart. The Canadian dollar is down 11 percent this year.
May’s GDP decline was driven by a plunge in commodity production and manufacturing.
Oil and gas extraction fell 1 percent in May, extending a 3.4 percent decline a month earlier. Manufacturing output dropped 1.7 percent, with widespread decreases across a number of industries, the statistics agency said.
Goods producers recorded a 0.6 percent drop during the month, while services industries declined 0.1 percent.
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