Weaker Canadian economy in October sets stage for slowdown

Fri Dec 23, 2016 1:02pm EST
 
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By Leah Schnurr

OTTAWA (Reuters) - The Canadian economy contracted in October as the manufacturing sector saw its biggest decline in nearly three years, raising the risk fourth-quarter growth could slow more than the Bank of Canada anticipates.

The gross domestic product fell 0.3 percent in October, data from Statistics Canada showed on Friday, below economists' expectations for no growth.

The decline came after four consecutive months of expansion and supported forecasts the economy slowed at the end of the year following a strong rebound in the third quarter.

Although the fourth-quarter is still tracking at around 1.5 percent, which is what the Bank of Canada expects, the underlying weakness in the economy puts that forecast at risk, analysts said.

That will keep the central bank dovish heading into the new year. After cutting rates twice last year, the bank is expected to hold steady until 2018, though some see the possibility of another cut. [CA/POLL]

"The uneven pace of the Canadian economic recovery after the oil shock gives them reason to continue on with their dovish message," said Nick Exarhos, an economist at CIBC Capital Markets.

The Canadian dollar touched a five-week low against the greenback following the data and was recently trading at C$1.3530 or 73.91 U.S. cents. [CAD/]

The goods-producing part of the economy drove the weakness, ending a four-month run of gains and led by a 2.0 percent decline in manufacturing, the biggest drop since December 2013.   Continued...

 
Production Associates inspect cars moving along assembly line at Honda manufacturing plant in Alliston, Ontario March 30, 2015.  REUTERS/Fred Thornhill