Canada posts surprise GDP decline

Canada's economy saw an unexpected 0.2 percent annualized decline in the second quarter, government data showed Friday, as housing investment and consumption slowed.

Statistics Canada said the economic slowdown was "attributable to continued declines in housing investment, smaller inventory accumulation, as well as slower international exports and household spending."

It was significantly lower than the Bank of Canada's forecast of 1.5 percent growth and analysts' consensus around 1.2 percent growth.

The results marked a sharp decline in the Canadian economy following a rebound of 2.6 percent in the first quarter, which was revised down half a percentage point.

And poor preliminary data for July, said analysts, suggests little to no growth is likely to follow in the third quarter.

"Weakness (in the economy) was relatively broad-based," Desjardins analyst Tiago Figueiredo said in a research note, adding that "Canadians apparently chose to squirrel away their income gains" rather than spend more.

TD Bank's James Orlando said other factors affecting the results included "multiple worker strike actions and rampant wildfires, which shut down oil and gas production in May and limited consumer activity in June."

He suggested "Canada has entered a stage of below-trend economic growth" that "should continue through the rest of the year."

Data showed a fifth consecutive quarterly decline in Canadian housing investment, the result of a sharp drop in new construction, combined with higher borrowing costs following an increase of the central bank's key lending rate.

Growth in household spending, a key indicator for the bank, slowed to 0.1 percent in the second quarter, with expenditures on new cars falling 9.5 percent.

The Bank of Canada in July raised its key rate to 5 percent, its highest level in 22 years, to combat inflation, which stood at 3.3 percent year-on-year in July -- well above the bank's 2.0 percent target.

Given the sudden economic downtown, most observers agree the central bank will not increase its key rate further at its next meeting on Wednesday.