Surprise dip in national GDP
Delays in oilsands production, slip in real estate sales at fault
OTTAWA — Canada’s gross domestic product unexpectedly shrank in January.
GDP contracted 0.1 per cent during the month, Statistics Canada reports. Shrinkage was led by sharp declines in oil production and drops in real estate prices.
After leading the Group of Seven in economic growth in 2017, Canada is widely expected to experience slower growth this year, as highly indebted households pare spending, experts predict. That should keep some pressure off the Bank of Canada to raise interest rates.
“The economy is slowing down as rate hikes are probably biting,” said Mark McCormick, North American head of FX strategy of Toronto Dominion Bank, who expects only one more hike this year. The Bank of Canada has raised borrowing costs three times since July.
January’s output drop puts the economy on track for sub-two per cent growth for a third straight quarter. That would be the slowest stretch since 2015.
Compared with a year earlier, output was up 2.7 per cent, the smallest gain in 11 months.
On the plus side, Statistics Canada revised its estimate for December GDP growth to 0.2 per cent from 0.1 per cent.
Only two of 15 economists surveyed by Bloomberg News predicted a contraction of the economy in January. Most see a quick rebound due to the temporary nature of the oil-production curbs.
The monthly decline was the largest since May 2016, driven by a 3.6 per cent drop in oil and gas extraction. Statistics Canada cited a 7.1 reduction in oilsands production due to unscheduled maintenance shutdowns.
Still, the overall trend for slower growth — which began in the second half of last year — remains intact for 2018.
While monthly GDP should bounce back, “we’re going to revise down our Q1 GDP forecast to sub-two per cent, adding weight to our view that the Bank of Canada is on hold until July,” Avery Shenfeld, chief economist at Canadian Imperical Bank of Commerce World Markets, said in a note to investors.
Another drag on January output was falling real estate activity as new mortgage qualification rules kicked in, particularly in Toronto.
Real estate agents and brokers saw their output drop 13 per cent in January, the largest monthly decline since November 2008 for the industry, as home sales slumped.
Many home buyers rushed to buy homes at the end of 2017 to get ahead of the rules, which had the effect of inflating transaction numbers for December but reducing them for January.