Canada’s GDP to be weak through 2010, OECD says

OTTAWA – Although Canada led in economic growth in the first quarter of 2010, the nation’s economy has slipped far behind the robust growth seen in Europe in recent months and will continue to be moderate in the second half of the year, according to the Organization for Economic Co-operation and Development’s Interim Economic Assessment released Thursday.

While Canada’s gross domestic product led the Group of Seven major economies in the first quarter of 2010 with annualized quarter-on-quarter GDP of 5.8 per cent, in the second quarter, its GDP fell to just two per cent, far below Germany’s nine per cent growth and the U.K.’s 4.9 per cent. The United States saw 3.7 per cent growth for the first quarter of 2010 and just 1.6 per cent growth in the second quarter.

"The uncertainty is caused by a combination of both positive and negative factors," OECD Chief Economist Pier Carlo Padoan said in the release. "But it is unlikely that we are heading into another downturn."

However, the OECD stressed overall recovery may be slowing faster than previously anticipated. Growth in G7 nations is expected to be around 1.5 per cent on an annualized basis in the second half of 2010 compared with the previous estimate in the OECD’s May Economic Outlook of about 1.75 per cent. "The loss of momentum in the recovery is temporary although uncertainty has increased," the report said.

If the slowdown in the recovery becomes entrenched, and the risk of downturn increases, additional monetary stimulus in the form of quantitative easing and near-zero interest rates for a longer period may be necessary, Padoan said.

Based on the most recent data, the OECD short-term forecasting models show Canada’s GDP is expected to rise by 2.2 per cent in the third quarter of 2010 and 2.3 per cent in the fourth. Germany’s GDP is expected to slow to 0.7 per cent in the third quarter and 1.1 per cent in the following quarter, while the U.K. is projected to have 2.7 per cent growth in the third quarter and then 1.5 per cent.

U.S. GDP is expected to rise by two per cent in the third quarter but moderate to 1.2 per cent in the next three-month period. In Japan, growth is forecast at 0.6 per cent in the third quarter and 0.7 per cent in the fourth.