Photographer: Aaron McKenzie Fraser/Bloomberg

Canada's Economy Unexpectedly Stalls as Oil Production Drops

Updated on
  • Consumer spending is still main driver of country’s growth
  • Bank of Canada will probably stay on hold until March: BMO

Canada’s economy unexpectedly stalled in October on a decline in oil output, a disappointing kickoff to the final quarter of 2017.

Gross domestic product was unchanged from September, Statistics Canada reported Friday in Ottawa, weighed down by a 3.5 percent drop in production by oil sands companies. Economists surveyed by Bloomberg News had forecast a 0.2 percent gain for October.

The report may cast doubt on the economy’s ability to end a stellar year with any momentum. Economists, including those at the Bank of Canada, had anticipated growth would accelerate in the fourth quarter, after a slowdown in the middle part of the year.

Erik Hertzberg/Bloomberg

The currency dropped by as much as 0.5 percent after the report. Investors are betting the Bank of Canada will raise rates as many as three times next year, as the economy continues to grow at a strong enough pace to eliminate excess capacity.

Economists forecast growth in the fourth quarter to pick up to an annualized 2.4 percent pace, from 1.7 percent in the third, and to expand by 2.2 percent in 2018. That’s above what the central bank considers non-inflationary growth.

Even with an anticipated second-half slowdown, Canada is headed for 3 percent growth this year. The country’s unemployment rate meanwhile has fallen to the lowest in a decade, helping to fuel household spending all year, and that continued to be evident in the October GDP figures. Retailers saw their production jump 1.1 percent in October, while wholesalers posted a 1.4 percent increase.

“The resilience in Canada is on the consumer side,” Robert Kavcic, senior economist at BMO Capital Markets in Toronto, said by phone. “Our view is they are going to hold off and wait to March” to raise interest rates, he said.

Other Highlights of GDP Report

  • Goods-producing industries posted a 0.4 percent drop in October, versus a 0.2 percent gain for service producers
  • The drop in non-conventional oil output led a 1.1 percent fall in the mining, quarrying and oil and gas extraction sector. The non-conventional oil sector is down 7 percent since hitting a record in May
  • Manufacturing output posted an increase for the first time in four months, driven higher by non-durable industries
  • The construction sector -- down 0.1 percent -- posted its first decline in five months

— With assistance by Erik Hertzberg

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