OTTAWA - The Canadian economy showed signs of emerging from the worst two quarters in decades in April, but the light at the end of the tunnel remains faint and distant.
Statistics released Tuesday found the country's gross domestic product retreated for the ninth consecutive month in April, slipping 0.1 per cent.
That was better than the 0.3 per cent contraction in March and spot on the economists' consensus for the month.
If there was a surprise, said Douglas Porter of BMO Capital Markets, it was that manufacturing was even weaker than thought despite the relatively good month in the auto sector.
As well, there were losses in the energy sector, retail trade and construction industries, while finance and insurance came in flat.
Porter said the Canadian economy is giving off some encouraging signals after almost a year of rapid deterioration that hammered almost every sector and sapped households of wealth, income and confidence.
"But there are also some trouble spots popping up," he said. "There's definitely still serious risks out there for the recovery. So until we definitively turn the corner, I'm going to stay cautious."
One of the those trouble spots surfaced in the United States, a critical market for Canada, with a new survey showing the American consumer remains in the dumps. The New York-based Conference Board said Tuesday its consumer confidence index fell five points in June, when analysts had been expecting a slight increase.
"I think at a lot of levels households and businesses have been scarred by what's happened, especially in the U.S.," explained Porter.
Economists are now projecting the second quarter of this year -- the April-June period that ends Tuesday midnight -- will show the economy contracted between two and three per cent on an annualized basis, better than the 5.4 per cent fall-back in the first quarter, but still a long way from growth.
Part of the reason is a one-time hit to the auto sector that occurred with the shutdown of Chrysler and General Motors plants in May and June, as the two companies sought to restructure under bankruptcy protection.
But there are other weaknesses as well, including that many Canadian businesses will need to clear an overhang of inventory before resuming production, and continuing weak consumer demand.
"While the pace of decline is slowing, the firm `green shoots' of growth should not be expected until late in the third quarter," said economist Grant Bishop of the TD Bank.
CIBC's Krishen Rangasamy said the GDP numbers can indeed be seen as a signal that the worst of the recession is in the rear-view mirror, but he too cautioned that Canadians shouldn't start breathing easier just yet.
"At this point, we're still aiming for a recovery in the final quarter of the year, helped mostly by a pick up in demand overseas," he said.
And when it does come, it will be tepid.
Two other releases Tuesday confirmed the pattern of an improving but still deteriorating economy.
The Industrial Product Price Index fell 1.1 per cent in May, mostly due to the impact of the strong Canadian dollar, while rising crude oil prices pushed the Raw Materials Price Index up 2.2 per cent, Statistics Canada reported.
