Mining slowdown hampers growth – by John Shmuel (Regina Leader Post – May 1, 2012)

http://www.leaderpost.com/index.html

Bank’s forecast in doubt
 
Canada’s gross domestic product unexpectedly fell 0.2 per cent in February, with much of the blame put on the mining sector.
 
“Potash mining was down 19 per cent as a result of the closure of mines in Saskatchewan in response to weak world demand,” the Statistics Canada report said. It was the steepest dive for the industry since 2009.
 
Statistics Canada blamed the decline on weakness in both the mining and manufacturing sectors, saying weak demand for some commodities and temporary mine closures contributed to the economic pullback. Market expectations were that real GDP would grow by 0.2 per cent. The dip follows growth of 0.1 per cent in January.
 
Douglas Porter, deputy chief economist with BMO Capital Markets, said in a report that mining, outside of oil and gas, was off seven per cent due to shutdowns in potash and nickel, part of which should soon be reversed. Two of Potash Corp. of Saskatchewan Inc.’s mines in Saskatchewan, Rocanville and Lanigan, were shut down during February.
 
The surprise contraction now calls into question whether the Canadian economy will meet the Bank of Canada’s forecast of 2.5 per cent growth in the first quarter.
 
“Given today’s GDP contraction, first-quarter growth looks more likely to come in at 1.7 per cent, weaker than even the softest forecasts for the quarter,” said Avery Shenfeld, chief economist with CIBC World Markets.
 
He noted major banks in Canada currently have growth forecasts ranging from 2.1 per cent to 2.5 per cent.
 
Tepid growth looks set to end speculation the central bank will move to hike its benchmark interest rate of one per cent anytime soon.
 
Expectations that a rate hike could come as soon as the summer ballooned recently, following particularly hawkish comments from bank governor Mark Carney in his April 17 interest rate announcement.
 
“This report is more in keeping with our view that the Bank of Canada would not be shifting toward rate hikes this year,” said Derek Holt, economist with Scotia Capital.
 
The value of the loonie pulled back in response to Monday’s weak data, signalling investors, too, were now reluctant to price-in a summer rate hike. Canada’s dollar lost 72 basis points, falling to $1.0122 US.
 
“There go market bets that the Bank of Canada would shift to summertime rate hikes,” Holt said.
 
For the rest of this article, please go to the Regina Leader Post website: http://www.leaderpost.com/business/Mining+slowdown+hampers+growth/6544641/story.html