Energy slump fuels dip in GDP
Statscan report shows unexpected drop in GDP for November
A sharp drop in energy production took the fire out of Canada’s economy in November, according to a Statistics Canada report Tuesday that showed an unexpected drop in gross domestic product for the month.
Canada’s GDP fell 0.1 per cent in November, defying economists’ expectations for a 0.2 per cent gain. November’s slip followed a flat reading in October.
A 2.5 per cent decrease in oil and gas extraction was largely responsible for the decline, Statistics Canada said, though Douglas Porter, deputy chief economist at BMO Capital Markets, noted that none of the other sectors performed particularly well either.
“While most of the downside surprise was heavily concentrated in one category, no sectors stepped up to provide any offset, which shows yet again that underlying activity remains lacklustre, at best,” Porter said. “Some of the drop in oil and gas should be reversed next month, but we will nevertheless trim our Q4 call on GDP growth to just under 1.5 per cent (from 1.9 per cent previously).”
Still, as National Bank senior economist Krishen Rangasamy noted, the factors weighing on the energy sector in November were “special and temporary,” with maintenance shutdowns cutting the output of crude petroleum, and mild weather taking a bite out of utility output — factors “that have little to do with the state of the economy. We expect those to rebound sooner rather than later.”
In fact, Statistics Canada notes “mining excluding oil and gas extraction grew 0.3 per cent as a result of increased overall production at copper, nickel, lead and zinc mines.”
Another bright spot in the report was manufacturing output, which gained 0.6 per cent in November for its third consecutive increase, the agency said.
There were slowdowns in the sectors of wholesale trade, finance and insurance, and construction, while there was increased activity in retail, accommodation, food services, general professional services and real estate services.
“The decline in output in November is in part the result of transitory factors that will eventually be reversed for December 2011 and January 2012; however, with output flat in October, fourth-quarter 2011 GDP growth looks as if it will slow,” said Paul Ferley, assistant chief economist at RBC Economics, which predicts the annualized rate of growth for the quarter will be 1.5 per cent, down from the third quarter’s 3.5 per cent, and lower than the bank’s earlier forecast of two per cent growth in the quarter.
If the GDP meets these revised estimates, Canada could be entering a cycle in which growth fails to support employment, consumer spending stalls on fears about employment loss, which in turn leads to slower growth. The unemployment rate rose to 7.5 per cent in December from 7.4 per cent in November, even though the economy added jobs in the last month of the year following two months of losses totalling 72,600 positions.
Statistics Canada announces January’s unemployment figures on Friday. Consensus forecasts are for an unemployment rate of 7.4 per cent and the addition 24,500 jobs.
RBC Economics’ expectation of 1.5 per cent GDP growth in the fourth quarter represents “a pace of growth that, if sustained, is unlikely to put any downward pressure on the unemployment rate,” says Ferley. “Thus, to help return growth to a rate that generates jobs at a faster pace than those entering the labour market going into 2012, the Bank of Canada is expected to keep policy highly accommodative in the near term.
“This will also help offset stiff headwinds related to the ongoing financial market pressures related to concerns about high debt levels among a number European countries.”