Data shows Canada set for subpar growth in fourth quarter

Tue Jan 31, 2012 10:41am EST
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By Louise Egan

OTTAWA (Reuters) - Canada's economy unexpectedly shrank in November for the first time since May, setting the stage for lackluster fourth-quarter growth and a sluggish start to 2012.

Oil and gas production slid in the month, outweighing gains in manufacturing and most services industries to trigger a 0.1 percent contraction of gross domestic product, Statistics Canada said on Tuesday. The economy grew 2 percent compared with a year earlier.

Together with stalled GDP in October, the data suggests fourth quarter performance is set to fall well below the Bank of Canada's forecast of 2 percent annualized growth, down from 3.5 percent in the prior quarter.

Economists are now tweaking their forecasts to show quarterly growth of closer to 1 percent, as temporary factors that buoyed growth in the third quarter disappear.

"We will need to see a pretty sizable rebound in December to save the quarter," said David Tulk, chief macro strategist at TD Securities.

"We expect the theme of subdued growth to carry forward into 2012, as a combination of external weakness and fatigued domestic demand will conspire to hold real GDP to an annual average growth rate of just 1.7 percent," he said.

Even with stronger activity, the central bank had signaled interest rates would likely remain on hold for at least the rest of this year. The European debt turmoil and choppy U.S. recovery have forced the bank to keep its overnight target at 1 percent for a record 16 months now.

The median forecast in a Reuters poll was for the next rate hike to come in the first quarter of 2013, but traders are pricing in a small chance of a rate cut.   Continued...

<p>A construction worker works on building new homes in Calgary, Alberta in this file photo. REUTERS/Todd Korol</p>