Economic Growth

Why is Canada’s economy shrinking?

Canada is in recession.

Canadian gross domestic product unexpectedly fell 0.2% in May. This was worse than the 0.0% expected by economists.

“The economy has contracted in six out of the last seven months,” BNP’s Derek Lindsay noted.

The resource-rich economy has felt the crushing pain of falling commodity prices as global demand for raw materials has decelerated.

And relief doesn’t seem to be coming anytime soon.

“We continue to see falling commodities prices weighing heavily on the economy, with mining, utilities, and manufacturing presenting biggest drags on the goods side,” Lindsay said.

And this probably means more easy monetary policy.

“The Bank of Canada is likely to read this report as supportive of their move to cut rates at their last policy meeting earlier this month,” Lindsay added. “We expect further easing ahead, as investment and exports remain in contractionary territory and the economy remains vulnerable to a correction in housing and a pullback in spending due to high levels of household debt.”

This article is published in collaboration with Business Insider. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Sam Ro is a deputy editor at Business Insider.

Image: A Canadian flag is seen through a window. Reuters.

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