Pace of Canada's Economy Moderates

Real gross domestic product was up only a modest 0.1% in November following a 0.2% rise in October. Output in the service-producing industries rose 0.2%, offsetting a 0.2% drop in the goods-producing sector. The increase was slightly below market expectations of a 0.2% rise.

The increase in service-producing output reflected broad-based increases led by retail trade, up 0.4%, and the arts, entertainment and recreation component, up an even stronger 1.2%. The weakness in the goods-producing sector was led by manufacturing, which dropped 0.3%. This, in large part, negated the surprising 0.5% rise in output in this component in October and is more consistent with a slowing U.S. economy and still-high Canadian dollar. Weakness was also evident in agriculture, forestry, fishing and hunting and the mining and oil and gas extraction, both down 0.4%.

This report is consistent with our expectation that fourth-quarter GDP growth will likely slow to an annualized 1.5% compared to the 2.9% gain in the third quarter. The slowing will largely result from the continuing drag from net exports along with a marked lessening in the pace of inventory accumulation.

The expected further weakening in U.S. growth through the first half of this year will likely put additional downward pressure on the pace of activity in Canada. To limit the extent of any slowing, we expect that the Bank of Canada will continue to cut interest rates. Our forecast assumes that the overnight rate will be lowered a further 100 basis points to a near-term trough of 3.00% over the first half of this year.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.