Yahoo Finance 'GDP growth falling to zero': Why economic growth could be temporary
Canada’s economy got the Christmas gift it so badly needed – a return to growth.
Statistics Canada says GDP expanded by 0.3 per cent in October. It contracted 0.1 per cent in September and grew 0.1 per cent in August. In other words, there was zero growth during those two months.
But the outlook going forward is likely gloomy, as gains in oil production start to disappear.
“Energy will be a big drag in coming months as the oil production cuts begin to bite, first voluntary for (November and December), then mandated for early 2019.” BMO Capital Markets chief economist Douglas Porter wrote in a research note on Friday.
“With modest growth, at best, expected for overall GDP in the next few months, we look for the quarter to ebb to 1.5% and then slow even further in Q1 of the new year (currently we are looking at 1.0%).”
Bank of Canada not worried
The Bank of Canada isn’t too concerned about the health of the economy. In its Year-End Economic Progress Report, Governor Stephen Poloz said that despite the stock market turbulence, the economy is in decent shape.
“Assuming the financial volatility didn’t damage the real economy too badly and conditions stabilize in 2019 Q1, it’s reasonable to look for the BoC to resume rate hikes next year, even if at a more cautious pace.” Benjamin Reitzes, Canadian rates & macro strategist at BMO, wrote in a note Friday.
Business sentiment weakened slightly from the previous quarter, but remains relatively upbeat.
Falling oil prices (CL=F) took a toll on energy-producing regions, particularly the Prairies.
Independent economic research firm Capital Economics isn’t upbeat though, saying “the slump in the Business Outlook Survey future sales balance looks consistent with GDP growth falling towards zero and is another reason to doubt that the Bank of Canada will raise interest rates further.”
Cars lead spending
The string of economic indicators didn’t end there. Statistics Canada also released retail sales data, which rose 0.3 per cent in October, driven largely by a car sales and gas station trips. If those two are stripped out, retail sales would have fallen 0.4 per cent.
Canadian spent less on electronics, furniture, building materials, clothes, and sporting goods.
CIBC chief economist Avery Shenfeld wrote in a note Friday that he expects shoppers to open up their wallets this month.
“We expect to see a bit better news in the holiday period, as low gasoline prices and softer housing resales could leave more money for discretionary holiday shopping,” Shenfeld said.
For the first time, cannabis sales were part of retail sales figures. Sales at cannabis stores totalled $43 million during the two week period following legalization.
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