Canadian GDP Stalls; Undercutting Outlook for Rate Increase

12/22/17 09:31 AM EST
By Paul Vieira 

OTTAWA--Economic output in Canada unexpectedly stalled in October -- due to a decline in the energy sector -- likely curbing expectations of a rate increase from the Bank of Canada in January.

The level of Canada's gross domestic product--the broadest measure of goods and services produced in an economy--was unchanged in October from the previous month at 1.75 trillion Canadian dollars ($1.37 trillion) on a seasonally-adjusted basis, Statistics Canada said Friday.

The result missed market expectations of 0.2% growth, according to economists at Royal Bank of Canada. Some economists on Thursday were discussing month-over-month growth of 0.3% for October after the release this week of encouraging wholesale and retail data.

On a one-year basis, the Canadian economy advanced 3.4% in October, still making it one of the best performers in the developed world.

Strong inflation and retail-sales data Thursday pushed the Canadian dollar upward, and lifted the probability of a Bank of Canada rate increase in January to almost 50/50 on the overnight index-swap market.

The flat GDP reading in October calls into question the Bank of Canada's forecast for fourth-quarter output. The central bank in October projected 2.5% annualized growth for the October-to-December period. A sluggish start in October means "there will be some work to do in order to hit" the 2.5% forecast, BMO Capital Markets said.

Bank of Canada Governor Stephen Poloz said this month the central bank officials would be cautious in crafting rate policy, due to a series of uncertainties related to indebted households' response to two rate rises earlier this year; new mortgage-financing rules; and the fate of the North American Free Trade Agreement. He added that incoming economic indicators will dictate whether central-bank concerns about some uncertainties remain justified.

According to the GDP report, the component covering the extraction of energy and metals fell 1.1% in the month. Nonconventional oil extraction fell 3.5%, or the fourth decline in five months, which the data agency said reflected a loss in capacity during maintenance operations. Also on the commodity front, mining activity decreased, 0.8%, after six straight months of growth, on weakness focused in copper, nickel and zinc extraction.

Also weighing on the GDP data was the utilities sector, which contracted 1.3%. Electricity and natural gas distribution declined. The construction sector also fell, 0.1%, for the first decline in five months.

Weakness in these components offset the strength among wholesalers and retailers. The wholesale sector climbed 1.4% in October, while retail increased 1.1%.

Overall, Canada's services sector rose 0.2% in October from the previous month, while the goods-producing side of the economy shrank 0.4%.

Write to Paul Vieira at paul.vieira@wsj.com

 

(END) Dow Jones Newswires

December 22, 2017 09:31 ET (14:31 GMT)

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