Canadian GDP Rose 0.1% In October
The National Bank of Canada | Dec 23, 2012 04:51AM ET
: Real GDP rose 0.1% in October, the first increase in three months (top chart). The goods sector was flat, after a 0.3% decrease in the prior month. Strength in oil and gas (+0.4%) was offset by output declines in mining (-0.4%), construction (-0.1%) and manufacturing (the latter’s -0.4% print was largely a result of the sharp 4.5% contraction in auto output).
The services sector expanded 0.1% driven by wholesale (+0.8%), retail (+0.3%), finance/real estate/insurance (+0.2%) which more than offset declines elsewhere including the 1.6% drop in arts/recreation. The trend in the last three months shows that the services sector continues to cushion the blow from the weakening goods sector, particularly in mining and manufacturing. Still, the August-October period was the worst threemonth stretch for the Canadian economy since mid- 2011 (middle chart).
OPINION: The soft October GDP report showed that Q3 weakness extended into the current quarter. With October's results, it will now take huge monthly growth rates of around +0.6% in both November and December to achieve the 2.5% Q4 print that the Bank of Canada had estimated for the quarter. While we expect production to ramp up over the balance of the year in response to the increase in US demand, particularly for autos, those successive sharp monthly gains are unlikely.
Moreover, sectors like finance/real estate/insurance are set to moderate in line with the observed deceleration in the housing market. All told, we would expect downward revisions to the Bank of Canada's forecasts in January's Monetary Policy Report. That may not be enough to get the central bank to remove its tightening bias, although this will reduce the odds of rate hikes in 2013.
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