UPDATE 2-Canada’s economic recovery stalls in April

* Flat GDP follows seven months of growth

* Data points to more moderate second-quarter growth

* C$ falls, rate hike expectations lessen

* Some say April not the start of a trend
(Adds market reaction, analysts, details)

By Louise Egan

OTTAWA, June 30 (BestGrowthStock) – Canada’s economy stalled
unexpectedly in April on a slide in retail sales, suggesting
the pace of growth is slowing and that the central bank may
think twice about raising interest rates again this month.

Statistics Canada said on Wednesday real gross domestic
product was flat in the month after seven straight months of
expansion and the fastest growth in a decade in the first
quarter. (Graphic: http://link.reuters.com/qar94m)

The Canadian dollar sagged after the report, which
disappointed market expectations for 0.2 percent growth.

Consumers bought fewer new cars and less clothing in April,
sending sales in the retail sector down by 1.7 percent, eroding
most of the previous month’s gains.

Smaller declines in manufacturing and utilities were offset
by gains in mining, wholesale trade and nonresidential
construction, Statscan said.

The abrupt slowdown in the recovery made official growth
forecasts for the second quarter look unattainable, said Credit
Suisse economist Jonathan Basile.

“The weaker-than-expected profile for GDP growth raises the
chances that the Bank of Canada pauses its removal of monetary
accommodation at the July meeting. This was not our expectation
going into today’s report,” Basile said.

The bank raised its key rate to 0.5 percent from 0.25
percent on June 1 but has given no hints of what its next move,
due on July 20, will be.

Market surprise at the data was reflected in the Canadian
dollar’s (CAD=D4: ) drop on Wednesday morning to C$1.0561 to the
U.S. dollar, or 94.69 U.S. cents, down from Tuesday’s finish at
C$1.0553, or 94.76 U.S. cents.

Markets have been pricing in a strong chance of another
rate hike in July. But yields on overnight index swaps, which
trade based on expectations for the Bank of Canada’s key policy
rate, edged lower after the data on Wednesday. They showed the
market saw only a 45.48 pct chance of a July rate hike, versus
49.63 pct just before the data and 60 percent as late as
Tuesday. (BOCWATCH: )

JUST A BLIP

But not everybody agreed with that assessment. Some
analysts dismissed the April data as a blip that is unlikely to
continue. After a mild recession, Canada’s economy has
rebounded at a surprisingly fast clip, posting annualized
growth of 4.9 percent in the fourth quarter and 6.1 percent in
the first quarter of this year.

“There should be enough strength in the underlying economic
momentum to dismiss the drag on GDP in April as something that
does not portend the start of a new trend,” said Scotia Capital
economists Derek Holt and Gorica Djeric.

“The Bank of Canada is not likely to be swayed by this
data,” they wrote in a note to clients.

The central bank’s forecast in April was for second-quarter
growth of 3.8 percent. It forecast the pace of growth would
moderate over the course of this year and next.

Investing

(Additional reporting by Howaida Sorour; editing by Peter
Galloway)

UPDATE 2-Canada’s economic recovery stalls in April