by Shi Li

    Beijing, Sept. 5 (Xinhua) -- The Canadian economy is showing signs of perking up after recording its first growth in 11 months in June.

    But analysts believe that recovery from the recession in Canada will be slow and fragile with many obstacles looming in the way of economic health.

    Statistics Canada on Monday reported an increase in Canada's gross domestic product of 0.1 percent in June, the first gain in 11 months. The GDP shrank an annualized 3.4 percent in the second quarter, the least of three consecutive declines, with cumulative output down by a record rate since the fourth quarter of 2008. Both figures fell short of market expectations of a 0.2 percent gain in June and a 3-percent contraction in the second quarter.

    However, the second-quarter contraction was close to the Bank of Canada's forecast of a 3.5-percent decline.

    Despite the improvement, the economic picture in Canada remains gloomy.

    That's because Statistics Canada said the country's unemployment rate edged up 0.1 percentage points to 8.7 percent as more people began looking for work.

    Statistics Canada said the rate was expected to climb higher in the coming weeks as companies continue to adjust to new economic realities.

    The agency did note, however, that while Canada has lost 387,000 jobs since the recession began in the country last October, only 31,000 of those losses have come in the past five months.

    The global financial crisis didn't begin in Canada but it did hit the country hard. Last fall's global sell-off of commodities threw a wrench into Canada's resource-rich economy.

    Still, the Bank of Canada and analysts say the economy will grow a bit in the third quarter. Transport Minister John Baird is cautiously optimistic.

    "While we see light at the end of the tunnel, we're still in the middle of a global economic recession," Baird said last week during a news conference in Ottawa. "A potential recovery is still both tentative and fragile."

    It was gratifying that consumer spending on goods and services, one of the main driving forces of the economy, advanced 0.4 percent in the second quarter. A 1.5 percent-increase in spending on durable goods, particularly motor vehicles, contributed to the quarter gain.

    The housing market has been warming up in recent months also. Statistics from the Canadian Real Estate Association show that sales activity in July topped 50,000 units for the first time ever.

    In the financial sector, household credit and the stock market also have shown signs of recovery.

    Due to "sizeable increases in motor vehicle purchases" and growing activity in the resale housing markets, "overall household borrowing increased to 98.3 billion Canadian dollars (90 billion U.S. dollars) during the second quarter of 2009," Statistics Canada said.

    Thanks to increases in energy and other commodity prices, Canadian stocks rebounded in the second quarter of 2009 with the Standard and Pool's/Toronto Stock Exchange composite index up nearly 20 percent.

    That was the largest quarterly percentage increase since the fourth quarter of 1999 and a significant recovery from the record decline witnessed in the later part of last year.

    In addition, the Canadian dollar saw a narrower band after surging against the U.S. dollar during the second quarter of 2009.

    Despite the signs that Canada's economy is gradually recovering, some negative factors also exist.

    Corporate profits dived sharply again in the second quarter, causing business investments, another driving force of economic recovery, to be lower in construction and engineering projects. Still, the 4.3 percent decline in expenditures on machinery and equipment was less pronounced than in the previous quarter.

    Moreover, if the United States, Canada's biggest trade partner, runs out of funds under its financial rescue plan, the Canadian economy may experience a more severe recession because of its reliance on exports to its southern neighbor.

    Things would turn more serious if commodities prices start surging again. That's because that could make the Canadian dollar appreciate in relation to the U.S. dollar, and in turn harm exports because of increased prices.

    Finance Minister James Flaherty had warned several times in recent weeks that the surging Canadian dollar would damage the economic recovery.

    Nevertheless, signs of recovery are being seen in Canada's economy, and economists are optimistic for continued growth in July and August. Still, there are many undetermined factors on the road ahead and it is believed by many that 2009 will be a tough year for the Canadian economy.

Special Report:  Global Financial Crisis