Canadian Real Gdp Commentary

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TD Economics Commentary January 30, 2009

IT’S RECESSION TIME • •

Canadian real GDP growth contracted by 0.7% in November GDP growth is now expected to contract in the 2.5% to 3.0% range in the fourth quarter

The Canadian economy has given in to international economic pressures surrounding it, and is now showing clear signs of a recession. A 0.7% GDP contraction in November was much worse than the 0.4% expected by markets, but in line with TD Economics’ expectations. This is the largest decline since August of 2003, and we have now seen the Canadian economy basically contract for the last four months, with the level of economic activity below what it was in June of 2007. The weakness was broad based with all but three industries posting cut backs in production. With slumping foreign and domestic demand the largest losses were in manufacturing and wholesale trade, with production retreating by a whopping 2.1% and 3.1% respectively. Related to the quick deterioration in the housing market, the other two big drags on the economy were construction and real estate where activity fell sharply by 1.2% and 0.3% respectively. Most other sectors disappointed as excluding these four industries, GDP growth still contracted by 0.2% in November. On the upside, the three gainers were agriculture (0.2%), accommodation and food services (0.3%), and health care and social assistance (0.4%). The latter component tends to be less responsive to the economic cycle, while we doubt that accommodation and

REAL GDP AT BASIC PRICES - CANADA November-08 Level* % Chg. % Chg. (Billions) M/M Y/Y All INDUSTRIES 1220.6 -0.7 -0.8 GOODS INDUSTRIES 358.7 -1.3 -3.8 Manufacturing 171.5 -2.1 -7.0 Mining, oil & gas extraction 55.3 -0.5 -2.0 Construction 73.6 -1.2 0.1 Utilities 30.6 -1.1 -4.8 SERVICE INDUSTRIES 864.5 -0.4 0.7 Wholesale trade 67.2 -3.1 -7.7 Retail trade 74.9 -0.5 1.3 Transport. & warehousing 56.4 -0.7 -1.4 Finance, Insurance, Real Estate 247.4 -0.3 1.4 Education Services 61.1 -0.1 2.5 * 2002 Chained Prices; Source: Statistics Canada / Haver Analytics.

food will be able to withstand the headwinds of a global recession. The slate of bad economic news this month has led us to revise down our fourth quarter real GDP contraction estimate from 1.6% to a range of 2.5% to 3.0%. As things are going, without taking the recent government stimulus package into consideration, the Canadian economy in 2009 was headed for an economic downturn almost as severe as the 1990’s recession. However, government support in terms of credit easing, infrastructure spending, and tax breaks will help curb what could have been a 2.0% contraction in 2009, to a more likely 1.4% retreat, thus putting a floor under the economy. Diana Petramala, Economist

For further information, contact Beata Caranci at 416-982-8067. TD Economics Commentary

January 30, 2009

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TD Economics Commentary

January 30, 2009