Factory Revival Signals Canada Emerging From Commodity Slump

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Canada’s gross domestic product expanded for the first time in three months in November on a manufacturing and wholesaling rebound, a sign the economy is shaking off the damage from a drop in commodity prices.

Output expanded 0.3 percent to an annualized C$1.65 trillion ($1.17 trillion), Statistics Canada said Friday in Ottawa, matching the median forecast in a Bloomberg economist survey. Production had stalled in October and shrank 0.5 percent in September.

The expansion backs Bank of Canada Governor Stephen Poloz’s prediction that industries outside of the energy sector will revive the economy’s momentum after output shrank in the first half of the year. The November expansion breaks a spell of negative developments, including the decline of Canada’s dollar to the lowest since 2003 and warnings about overstretched housing markets.

Friday’s report is “suggesting momentum through the fourth quarter, which maybe sets us up for a return to positive growth in the first quarter” of this year, said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. “You’re getting a good bounce back in November, without it you would probably be getting a decline in activity” in the fourth quarter, he said.

Wholesaling rose in November by 1.3 percent, the biggest gain in a year, and retail sales increased 1.2 percent. Factory production rose 0.4 percent with the first gain in three months led by durable goods such as wood and electrical products.

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A renewed slump in prices for oil and other commodities stalled the economy at the end of 2015 and will delay its return to full capacity until the end of next year, Poloz said Jan. 20. Fourth-quarter GDP data, due to be published on March 1, will probably reflect the setback of falling oil prices.

Still, Poloz said he decided against cutting interest rates this month on signs of momentum in other parts of the economy, in particular non-energy, exchange-rate sensitive exports, and also because the government pledged to offer a program of deficit spending in the next budget.

Canada’s dollar was little changed after the report at C$1.4041 per U.S. dollar at 8:54 a.m. Toronto time. The U.S. reported gross domestic product rose at a 0.7 percent annualized rate in the three months ended in December after a 2 percent gain in the third quarter.

Canada’s GDP figures even showed some good news for the energy industry. Oil and gas extraction grew 2.1 percent in November. Non-conventional production rose 3.4 percent, part of a recovery from September’s 10.6 percent drop triggered by production shutdowns.

Growth was held back as the construction industry’s output stalled, and the finance and insurance industry shrank a fourth straight month.

(Updates with economist comment in sixth paragraph.) --With assistance from Erik Hertzberg.

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