Economy’s decline bad, not ‘atrocious’

OTTAWA — It was bad, but not as bad a feared.

Canada’s economy did contract in January, as widely anticipated, pulled down mainly by declines in the wholesale and retail sectors, as well as weaker manufacturing and construction activity.

But the impact of the collapse in oil prices turned out to be less threatening than previously thought, according to numbers released Tuesday by the country’s data agency.

And the January report certainly did not provide the scenesetter for an “atrocious” first quarter, as Bank of Canada governor Stephen Poloz cautioned a day earlier in an interview published in the Financial Times.

Gross domestic product declined 0.1 per cent in January after edging up 0.3 per cent in December and falling back by 0.2 per cent in November, Statistics Canada said. Most economists had already forecast a contraction of 0.2 per cent in January.

Poloz’s warning of much worse to come “was a little bit overdone,” said Benjamin Reitzes, senior economist at BMO Capital Markets.

The central bank governor “has told us we shouldn’t hang on to his every word. While I can sympathize with him saying that, he has to be aware that his words have a little bit more meaning than somebody else’s,” Reitzes said.

“I think a little more caution is warranted than what he’s used to. Try to be a little bit more careful with your wording in the future, Mr. Poloz.”

RBC Capital Markets said that “while there has been nothing redeeming in terms of activity indicators of late, BoC governor Poloz reiterated last week that the bank is braced for ‘frontloaded’ weakness and — at least at this stage — continues to have faith that better economic data will dominate around midyear.”

“The governor’s comments suggest we may get a ‘free pass’ on some of the data for Q1.”

RBC has forecast 1.5 per cent growth for the quarter.

“January was weak, but not ‘atrocious,’ ” said Avery Shenfeld, chief economist at CIBC World Markets, referring to Poloz’s characterization of the first quarter.

The consensus among economists for first-quarter expansion is closer to 0.8 per cent.