Canada Oil Output Limits GDP Declines in January

Crude oil gave Canada’s economy a surprise cushion in January, with gross domestic product shrinking less than economists forecast.

Output fell 0.1 percent, Statistics Canada said today in Ottawa, as rising oil production offset declines by wholesalers and retailers. The median forecast in a Bloomberg economist survey was for a 0.2 percent drop, with estimated declines ranging from 0.1 percent to 0.5 percent.

The report suggests that while Canada’s economy is being hurt by falling oil prices, the impact may not be as dire as some have worried. It also backs Bank of Canada Governor Stephen Poloz’s view that his surprise interest rate cut in January has bought policy makers time, said Bank of Montreal senior economist Robert Kavcic.

“GDP momentum has clearly slowed going into the first quarter,” Kavcic said by telephone. Still, “it doesn’t look all that atrocious at this point.”

Kavcic was referencing Poloz’s comments in a Financial Times interview published yesterday saying the first quarter will “look atrocious” because of the oil shock.

The Canadian dollar pared losses after the GDP report, down 0.5 percent to C$1.2736 against its U.S. counterpart at 8:36 a.m. in Toronto. The dollar had been down as much as 0.8 percent earlier.

Crude Oil

Crude oil and gas output rose 2.6 percent in January, after a 2.1 percent December fall, as oil sands producers completed maintenance work on some facilities, the statistics agency said.

Those gains were offset by a 2.6 percent drop in wholesaling and a 0.7 percent decline in manufacturing.

Today’s report showed service industries posted declining output in January for the first month since February 2014, falling 0.3 percent. Production of goods rose 0.3 percent in January, led by higher oil output.

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