Source: The Canadian Press

Canada’s economic recovery all but flatlined in the summer as the high dollar sabotaged the ability of manufacturers to sell their goods to foreign markets.

Statistics Canada reported Tuesday that the July-to-September period saw the economy slow to a crawl, eking out a 1% gain in gross domestic product.

That’s about half a point less than analysts and the Bank of Canada had been expecting, and compares unfavourably to the 2.5% advance in the United States in the same period.

As well, September saw the economy contract for the second time in the three-month stretch, falling back 0.1%.

“The story is staring us in the face. We can thank a strong Canadian dollar for a not-so-strong Canadian economy,” said CIBC chief economist Avery Shenfeld.

“Our exports to the U.S. are floundering in quarters in which the U.S. has seen a huge rise in its overall imports.”

Exports declined 1.3% on a quarter-to-quarter basis, a whopping 5% on an annual basis. The trade imbalance — imports rose 6.4% annualized — sliced about 3.5% off the gross domestic product.

The other major weakness was residential construction, which fell an annualized 5.3%.

Economists had expected a weak quarter, but not this weak. The consensus was for a growth rate of about 1.5%, while the Bank of Canada had forecast a 1.6% advance.

The September contraction also gave a weak send-off to the current fourth-quarter performance, which won’t be known for some time.

“In a nutshell, this result is a clear disappointment,” said Douglas Porter of BMO Capital Markets. “Bottom line for the Bank of Canada — there’s zero rush to raise (interest) rates again.”

Bank governor Mark Carney is due to make his next interest rate announcement next week, but few expect him to move the policy rate above the current 1%.

TD Bank economist Diana Petramala said her bank’s view is that Carney won’t move again on interest rates until the third quarter of next year.

Still, she said she expects the third quarter to have been the bottom of the economic deceleration, and that the fourth quarter will see a modest improvement to about 2%.

For robust growth to return, however, the U.S. economy must start pumping out jobs in sufficient numbers, say analysts. But the news is not good on that front — the U.S. has only recouped about 15% of the jobs it lost during the recession.

And Federal Reserve chairman Ben Bernanke said Tuesday that the American economy is not strong enough to “materially reduce” the unemployment rate.

The markets saw little to like in the GDP numbers, taking it out on the loonie throughout the day. The dollar closed 0.76 of a cent lower at 97.41 US, the lowest in a month.

Statistics Canada did upgrade second-quarter growth somewhat by three-tenths of a point to 2.3%, but that was offset by a downward revision of the first quarter to 5.6% from the previously reported 5.8%.

For the year so far, Canada’s economic speed is barely ahead of the United States.

Based on recent returns, however, it’s no contest — the U.S. economy advanced by 2.5% in the third quarter, compared to Canada’s one.