Highlights:
- Canadian GDP fell 0.1% in January — below market expectations for a 0.1% increase
- Weakness was concentrated in a (likely transitory) decline in oil sands output and a pullback in home resales. Outside of the oil and real-estate components, output increased about 0.2% by our calculation.
- The softer-than-expected start to the year leaves risks tilted to the downside relative to our call for a 1.9% Q1 GDP gain — but we still expect growth is tracking in a 1.5% to 2% range that would be at or a bit above the economy’s long-run potential growth rate.
Our Take:
GDP unexpectedly fell 0.1% in January. Markets expected closer to a 0.1% gain in the month, on balance. The news wasn’t all bad, though. The big drop in home resales in January alone subtracted about 0.1 percentage points from headline GDP growth. Home resales have remained soft, but that decline probably won’t be repeated to the same extent. Much of a big 7% drop in oil sands production was reportedly the result of transitory maintenance shutdowns that will be unwound in coming months. Outside of those two components, output edged up about 0.2% by our calculation — led by a 0.7% increase in manufacturing output and a 0.5% construction increase.
The softer-than-expected start to the year still leaves risks tilted to the downside relative to our call for a 1.9% Q1 GDP gain — and further downside relative to the Bank of Canada’s 2.5% forecast for the quarter. The prospect for some bounce-back in coming months as transitory January weakness reverses, as well as an upward revision to December GDP growth to 0.2% from 0.1%, still leaves growth tracking in a 1 1/2% to 2% range though. To be sure, that is well-below the 4% pace of growth the economy was running at a year ago but with the economy likely at capacity that stronger growth is more difficult to accommodate. Looking through monthly volatility the economy still looks to be growing at a rate at or a bit above its long-run potential growth rate.
