Economy’s decline bad, not ‘atrocious’
Impact of oil’s collapse less dire than anticipated
OTTAWA • It was bad, but not as bad as 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 data released Tuesday by the country’s data agency.
And the January report certainly did not provide the scene-setter for an “atrocious” first quarter, as Bank of Canada governor Stephen Poloz cautioned just a day earlier in an interview published in the Financial Times.
Gross domestic product declined 0.1% in January after edging up 0.3% in December and falling back by 0.2% in November, Statistics Canada said.
Most economists had already forecast a contraction of 0.2% in January.
Mr. Poloz’s warning of much worse to come “was a little bit overdone,” said Benjamin Reitzes, senior economist at BMO Capital Market.
The central bank governor “has told us we shouldn’t hang on 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,” Mr. 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 ‘front-loaded’ weakness and — at least at this stage — continues to have faith that better economic data will dominate around mid-year.”
“The governor’s comments suggest we may get a ‘free pass’ on some of the data for Q1.”
RBC has forecast 1.5% growth for the quarter.
In Tuesday’s report, Statistics Canada said wholesale trade dropped 2.6% in January after climbing 1.8% in December.
“The wholesaling of building materials and supplies as well as of motor vehicle and parts were major contributors to January’s decline,” the data agency said. “The activities of miscellaneous wholesalers — which include agricultural supplies — and machinery, equipment and supplies wholesalers were also down.”
The retail sector, which is weath- ering some big changes in Canada — most notably Target’s retreat back to the United States — was down 1% in January and follows a drop of 1.4% a month earlier.
Meanwhile, the manufacturing sector — which many anticipated benefiting from the weak Canadian dollar and a resurgent U.S. economy — fell 0.7% after increasing 2.1% in December.
Construction activity was also lower, shedding 0.4% in January following a 0.3% gain the month before.
The mining, quarrying and oil and gas extraction sector was up 1.4% overall in January, Statistics Canada said. That’s a rebound from November and December, when output declined 0.8% and 0.9%, respectively, due mainly to shutdowns for maintenance work.
In the separate energy sector — focusing specifically on oil and gas, and utilities — output rose by 1.3% in January, compared with a 1.5% decline in December due to warmer weather.
But when looking at oil and gas extraction alone, output jumped 2.6% in January after a 2.1% drop the previous month. Oil sands activity rose following maintenance in the fourth quarter at some of those facilities, Statistics Canada said.
“January was weak, but not ‘atrocious’,” said Avery Shenfeld, chief economist at CIBC World Markets, referring to Mr. Poloz’s characterization of the first quarter.
“While Q1 will likely still be no better than 1% growth, the issue for monetary policy will mostly be about how much of that weakness extends into the subsequent two quarters.”
The consensus among economists for first-quarter expansion is closer to 0.8%.
“Much will depend on where oil prices settle,” RBC noted.