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Canada’s economy wilts, sets stage for weaker second quarter

These are stories Report on Business is following Friday, June 28, 2013.

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Economy stalls
Canada's economy just about stalled out as the second quarter got up and running, growing at a tepid pace of just 0.1 per cent in April.

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The April reading marked the fourth monthly gain in a row, but sets up a second quarter that looks to be weaker than the first, when gross domestic product expanded at an annual pace of 2.4 per cent.

Indeed, economists say, the quarter that ends this weekend could show growth of below 2 per cent.

On the goods side of the ledger, production slumped 0.3 per cent, led by the resources sector and believed to be partly the result of maintenance shutdowns at refineries. The oil and gas sector, in particular, chalked up a drop of 2.7 per cent.

But the services side showed a gain of 0.3 per cent, Statistics Canada said today.

Construction also slipped, while the manufacturing, agriculture and forestry sectors gained.

"Looking at the trend in recent months, April's 0.1-per-cent GDP growth rate marks the second straight month of deceleration, following rates of expansion around 0.3 per cent in the winter," said economist Emanuella Enenajor of CIBC World Markets.

Ms. Enenajor expects the economy to show growth just shy of 2 per cent in the second quarter.

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Going forward, there will also be a double hit from the devastating floods in Alberta and a construction strike in Quebec.

"We suspect that this nasty combo could cut June GDP by as much as 0.5 percentage points," said chief economist Douglas Porter of BMO Nesbitt Burns.

Mr. Porter now expects growth of 1.5 per cent in the second quarter, down from an earlier projection of 1.8 per cent. For the year, he expects growth the economy to expand by just 1.6 per cent.

"While Q3 will see some bounce-back from the June hits, it won't be quite enough to provide a full offset," he said.

The manufacturing sector, which had been expected to decline, showed a gain of 0.2 per cent, while the country's real estate agents and brokers eked out a gain of 1 per cent as the housing market stabilized somewhat from the body blows of earlier months.

And, of course, the NHL continued to help the economy in its own way as the arts and entertainment sector gained 3.4 per cent, which Statistics Canada said was "mainly the result of an extended season following the end of a labour dispute in professional hockey."

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RIM sinks
Shares of Research In Motion Ltd. plunged by almost 28 per cent today, slipping below $11 on Nasdaq, after the BlackBerry maker posted a first-quarter loss of $84-million (U.S.) and forecast a second-quarter slump, as well.

"The smartphone market remains highly competitive, making it difficult to estimate units, revenue and levels of profitability," the Canadian company said today, adding it would continue to invest in its new operating system.

"Based on the competitive market dynamics and these investments, the company anticipates it will generate an operating loss in the second quarter," it added.

"The company will also continue to implement the cost savings and process-improving initiatives it started last year, in order to drive greater efficiency throughout the company, and redirect capital from these savings to areas of investment that will drive future revenue growth."

The company, whose legal name is still Research In Motion but which has rebranded itself as BlackBerry, lost 16 cents a share in the first quarter, a narrower loss than the $518-million or 99 cents a year earlier, The Globe and Mail's Omar El Akkad reports.

Revenue rose to $3.1-billion from $2.8-billion. The company noted it took a hit to revenue in its services unit because of foreign currency restrictions in Venezuela.

RIM said it shipped 6.8 million BlackBerrys.

"A full quarter of BB10 sell-in should've resulted in better results," said Mark Sue of RBC Dominion Securities.

"BlackBerry could be discounting new and older products, which explains the decline in margins. We expect stock to head down to lower end of trading bracket of $11-$18."

Canada unveils new rules
The Canadian government today unveiled its long-awaited rules that will govern the transfer of spectrum licences between telecom carriers in the $19-billion wireless industry, The Globe and Mail's Rita Trichur reports.

The framework document is intended to provide more clarity on how Ottawa plans to evaluate requests for spectrum-licence transfers by building on a preliminary announcement earlier this month.

Industry Minister Christian Paradis made clear that Ottawa plans to apply the new rules to all licence transfers, including "prospective transfers" that could culminate through "option" deals and other agreements that allow carriers to reserve the right to purchase spectrum at a later date.

Additionally, licensed carriers will face a new obligation if they enter into such agreements. Specifically, a licensee would be required to seek "a review within 15 days of entering into any agreement that could lead to a prospective transfer."

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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