Canada’s Economy Unexpectedly Stalls in October

The Canadian dollar fell against its rivals on Friday, after Statistics Canada reported a worse-than-expected GDP data for October. Economists doubt whether the Bank of Canada will be in a position to raise rates in the next monetary policy meeting to be held on January 17. The reason is not only the soft GDP growth data, but also the sixth round of NAFTA talks that are scheduled to take place in Montreal, between January 23 and January 28.

Canada’s economic growth was unchanged in October, following a 0.2% growth in September. Economists had expected the economy to expand by 0.2%. Nine out of 20 industrial sectors grew in October. Service-oriented industries recorded a growth of 0.2%, mainly due to an increase in wholesale and retail trade, and real estate. Goods manufacturing industries reported a 0.4% contraction, largely due to quarrying, mining, and oil and gas extraction sector.

Analysts were surprised by the slowdown in economic growth, given the strong retail sales growth of 6.7% in October, compared with the same period last year. Economists had expected a growth of only 5.5%.

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Commenting on the GDP data, economist at CIBC Capital Markets, Nick Exarhos stated

“although today’s GDP figures were the last major release ahead of Christmas and the New Year, the economy didn’t give us much reason for good cheer.”

Further, Canada will begin the new year without a clear plan to save the NAFTA (North American Free Trade Agreement). The US, Mexican and Canadian negotiators made little headway on issues such as telecommunications and eCommerce in the fifth round of meeting held in October. According to Bloomberg, the parties have not come to an agreement even on minor issues. Thus, it now looks nearly impossible to arrive at an agreement before the end of March.

Only two out of 30 chapters have been completed in the new deal. The deal governs more than $1 trillion in trade between the three countries. The US President has already threatened to pull out of the deal, if the new terms don’t favor the US. Based on the facts above, I expect the Bank of Canada to maintain the benchmark rates during the January policy meeting.

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