Industries cut back drastically on capacity use between April and June, as the impact of SARS, mad cow and a stronger Canadian dollar took their toll on the economy, Statistics Canada said Wednesday.

The industrial capacity utilization rate fell from 82.5% in the first quarter to 81.2% in the second quarter.

This was the lowest level since the fourth quarter of 2001, when the rate reached 80.4%.

BMO Nesbitt Burns said that the decline was broadly in line with expectations, and was little surprise since industrial production tumbled at a 6.4% annual rate in the quarter.

Forestry, utilities and mining all posted large declines, while construction rose. Nesbitt said that with another quarter like Q2 and Canadian capacity utilization will fall through the cyclical low in 2001. “More probable is a further decline of about 0.5 percentage points in Q3, and then a modest rebound in Q4,” it predicted.

“Emerging signs of a more rapid U.S. expansion, the lifting of the impact of SARS and part of the impact of BSE should combine to lead to improved production and capacity utilization conditions,” RBC Financial said. “Current excesses, however, put on hold any near term likelihood of business investment in expanded capacity across a wide range of industries.”

Despite the fall, Nesbitt pointed out that average capacity utilization over the past 15 years for overall industry and manufacturing has been around 82%. U.S. industrial capacity utilization currently is just 74.5%, far below its long-term average of around 81% and still far below the Canadian level.

Nesbitt said that Canadian capacity utilization for overall industry bottomed at 80.4% in the fourth quarter of 2001, before rebounding rapidly last year.