Canada: GDP contracts in January on unplanned energy-sector shutdowns and a collapse in home sales
March 29, 2018
Canada’s economy contracted unexpectedly at the outset of the year as lower oil output and a weaker services sector weighed on output. GDP shrank 0.1% in monthly terms in January, the weakest print since last August and contrasting December’s 0.2% expansion. January’s reading came in below analysts’ expectations of a mild 0.1% gain and highlighted the economy’s skittishness as it has adjusted to slower growth since last year’s short-lived boom.
January’s print, released by Statistics Canada, recorded contractions across half of the 20 included industrial sectors. Goods-producing industries posted weaker output from a month earlier as non-conventional oil extraction—primarily in Alberta’s oil sands—slowed due to unscheduled maintenance shutdowns. Moreover, non-energy mining activity contracted for a fourth consecutive month. In the services-producing industries, output was essentially unchanged from a month earlier as gains in the trade and finance sectors were offset by the real estate sector’s sharpest decline in nearly a decade. Home sales plummeted as new mortgage-lending rules came into effect at the beginning of the month.
On an annual basis, GDP growth ticked down sharply from 3.4% in December to 2.7%. Meanwhile, annual average GDP growth was stable from a month earlier at 3.3%, again marking the strongest reading in nearly six years.
Commenting on January’s outturn, Royce Mendes, Director and Senior Economist at CIBC World Markets, noted:
“There are reasons to excuse January’s GDP decline, but the Canadian economy is now clearly on a slower track. […] We knew real estate would be a negative contributor. Since the B20 rules kicked in, home sales have plunged in Canada, and early indications suggest that the sector will again weigh on GDP in February. However, the largest negative contribution came from an unexpected decline in the mining, oil and gas category. It’s not immediately clear how long the [oil and gas] output will be offline, but it is expected that activity will completely rebound, meaning it isn’t indicative of a broader slowdown in the economy.”