Canada: Real GDP Slips Down the Chimney in October

October’s sharp decline in real GDP was primarily driven by weakness in goods-producing industries, which fell by 0.7% m/m in the month. The manufacturing sector saw notable contractions in both durable and non-durable manufacturing. Wood product manufacturing fell as production slowed after the announcement of additional tariffs on Canadian lumber in October. Machinery manufacturing also took a notable step back (-6.9%), after leading the manufacturing advance in September. Construction activity retreated for the first time in six months, driven by lower engineering and other construction activities. Oil and gas extraction declined as maintenance activities contributed to lower bitumen extraction in the month. In contrast, mining and quarrying rose, led by increased potash mining.

The services sector posted a modest contraction in October, at -0.2%. Retail trade External link. fell for a second consecutive month while wholesale trade contracted for the second time in the last three months. Workers’ strikes also weighed down activity in the services sector. The Alberta teachers’ strike dragged down public sector activity while transportation and warehousing sector fell primarily due to the postal workers’ strike. One bright spot in the release was the finance and insurance sector, which posted growth for the fifth straight month, largely due to increased activity in equity and debt markets.

Statistics Canada’s flash estimate for real GDP in November suggests modest growth. This is thanks to gains in educational service, construction and transportation and warehousing offsetting weakness in resource extraction and manufacturing.

Due to the economic weakness in Q4, real GDP per capita continues to trend downward, with no clear signs of improvement despite the slowdown in population growth External link. (graph 2). 

Given the new real GDP data, our tracking framework suggests the economy should grow at an annualized pace of about 0.5% in the fourth quarter, below the Bank of Canada’s latest projection External link..

Despite likely dodging a recession, the Canadian economy faces significant headwinds, as we laid out in our latest Economic and Financial Outlook External link.. Population growth is set to moderate further under the federal government’s new immigration targets External link. while ongoing mortgage renewals should dampen consumption growth moving forward. Moreover, the upcoming CUSMA review next year is likely a critical turning point for Canada’s economy.

The Bank of Canada recently left its policy rate External link. unchanged. At the time, the Governing Council reiterated that the current policy rate is at roughly the right level to keep inflation close to the 2% target while assisting the economy through a period of structural adjustment. All in all, today’s GDP data doesn’t move the monetary policy needle.