UPDATE 2-Canada GDP shrinks, stirring talk of another rate cut

Fri Jan 30, 2015 10:00am EST
 
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(Adds reaction, Canadian dollar sinking)

By David Ljunggren

OTTAWA Jan 30 (Reuters) - Canada's economy unexpectedly shrank by 0.2 percent in November, prompting market talk that the Bank of Canada will cut interest rates in March for the second time in six weeks.

Analysts had expected no growth from October. The month-on-month decline was the largest since a 0.4 percent drop in December 2013.

Gross domestic product shrank on weaker manufacturing, mining and oil and gas extraction, Statistics Canada said on Friday.

Last week the central bank shocked markets by lowering its key interest rate to counter plunging oil prices that have cut economic growth in this oil-exporting country and the value of the Canadian dollar.

"The data in hand do support the Bank of Canada's very bearish interpretation of the impact of lower oil on the Canadian economy," said Bill Adams, economist at PNC Financial Services Group.

"If economic data remain this weak in early 2015, it could justify another rate cut from the Bank of Canada at either the March or April rate decisions," Adams said.

The central bank is due to make an interest rate announcement on March 4 and market operators have priced in a 76 percent chance of another cut then.   Continued...