Canada’s Economic Rebound Sapped by September Oil SurpriseGreg Quinn
Canada’s economy unexpectedly contracted in September as fires and maintenance shutdowns interrupted oil production, marring a report that showed the first quarterly expansion this year and calling into question the outlook.
Gross domestic product grew at a 2.3 percent pace in the July through September period, Statistics Canada reported Tuesday from Ottawa. It shrank 0.5 percent in September, a decline that exceeded all 22 forecasts in a Bloomberg survey.
Much of the monthly shrinkage was linked to a 5.5 percent drop in oil and gas extraction, and some of that weakness may be temporary. Oil production was hampered in September as a fire curbed output from Syncrude Canada Ltd.’s upgrader in Alberta, and Nexen Energy said it was shutting its Long Lake unit. Still, it doesn’t bode well for the outlook.
“To end the quarter with such a thud takes any shine off such a respectable quarterly report,” Doug Porter, chief economist at BMO Capital Markets, said by telephone from Toronto. “It’s a pretty feeble handoff.”
Canada’s “two-speed” economy -- defined by low oil prices on the one hand, and momentum outside of the energy sector on the other -- needs until the middle of 2017 to get back to full capacity, Bank of Canada Governor Stephen Poloz predicts. The central bank makes its next interest-rate decision Wednesday.
Poloz cut interest rates in January and July to counteract the oil price shock, which led to a depreciation of the country’s currency and is providing a boon to automakers and other goods makers.
Exports rose 9.4 percent in the third quarter led by automobiles and consumer goods, while imports declined 2.9 percent, Statistics Canada said. Consumer spending gained at a
1.8 percent annualized pace.
The monthly GDP drop “does have a temporary feel to it,” David Tulk, chief Canada macro-strategist at TD Securities in Toronto, said by e-mail, “but the momentum in the economy heading into the fourth quarter isn’t wonderful.”
Exporters are gaining from a weak currency and rising U.S. demand and “those supportive factors for exports should continue,” said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. The September output decline still “raises concern about the fourth quarter,” he said.
Growth was slowed by a 3 percent decline in business investment, the third drop in a row. Government expenditures also fell by 1.6 percent.
Third-quarter growth almost matches the Bank of Canada’s most recent forecast for a 2.5 percent increase. The central bank also said output growth would slow to a 1.5 percent pace between October and December before picking up to a rate of 2.7 percent in the second half of next year.
Economists predicted quarterly GDP growth of 2.3 percent and that the monthly reading would be unchanged.
Layoffs and canceled investments at resource companies in the province of Alberta such as Talisman Energy Inc. have accounted for much of the damage in Canada this year.
Statistics Canada revised its first-half estimates, saying GDP shrank 0.7 percent in the first quarter and 0.3 percent in the first quarter, compared with preliminary readings of 0.8 percent and 0.5 percent.