Canadian economy contracted in the first half of 2015

The Canadian economy contracted in the first half of 2015, dragged down by a sharp retrenchment in oil & gas investment and drilling activity. A number of temporary disruptions, including auto sector retooling, shipping port bottlenecks and wild fires also contributed to the slowdown. Output in the second half of the year will pick up modestly, with relatively strong exports in the transportation and aerospace industries somewhat offsetting the weakness in oil-producing provinces. Full-year growth will likely average just 1.0% this year, with weak global demand and broad commodity price weakness limiting growth. 

Despite the first half contraction, the labour market has continued to add jobs at a moderate pace, with positive momentum in public sector hiring and services offsetting restructuring in the oil patch. Vehicle sales remain near record levels, and auto production will pick up in the second half year after scheduled plant maintenance shutdowns are complete. Housing activity in most regions is reasonably buoyant, underpinned by historically low borrowing costs. 

However, consumers are expected to be relatively cautious spenders in the year ahead in the face of weak wage growth, limited pent-up demand and elevated household debt burdens. Consumer confidence and major purchase intentions have recently softened, primarily on concern over labour market prospects. Manufacturing has been slow to gain traction alongside underperforming US and Chinese economies, but is poised to record stronger gains with an increasingly competitive Canadian dollar and rising auto sales and residential construction south of the border. 

Business investment remains weak with energy sector cutbacks and moderate sales growth weighing on capital spending plans, though increased infrastructure investment is providing some support. Despite a sharp decline in energy prices, headline inflation remains around 1%, a relatively high rate compared with other advanced nations. Core inflation is running just over 2%, reflecting the pass-through of a weaker Canadian dollar to a range of imported goods.