Economy’s decline bad, not ‘atrocious,’ economists say
Oil-price collapse had less impact than feared in first quarter
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 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 Market.
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 ‘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 per cent growth for the quarter.
In Tuesday’s report, Statistics Canada said wholesale trade dropped 2.6 per cent in January after climbing 1.8 per cent in December.
The retail sector, which is weathering some big changes in Canada — most notably Target’s retreat back to the United States — was down one per cent in January and follows a drop of 1.4 per cent 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 per cent after increasing 2.1 per cent in December.
Construction activity was also lower, shedding 0.4 per cent in January following a 0.3 per cent gain the month before.
The mining, quarrying and oil and gas extraction sector was up 1.4 per cent overall in January, Statistics Canada said. That’s a rebound from November and December, when output declined 0.8 per cent and 0.9 per cent, 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 per cent in January, compared with a 1.5 per cent decline in December due to warmer weather.
But when looking at oil and gas extraction alone, output jumped 2.6 per cent in January after a 2.1 per cent drop the previous month. Oilsands 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 Poloz’s characterization of the first quarter.
“While Q1 will likely still be no better than one per cent 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 per cent.