Canada's economy unexpectedly stalls as oil production drops

By Theophilos Argitis on 12/22/2017

OTTAWA (Bloomberg) -- Canada’s economy unexpectedly stalled in October on a decline in oil output, a disappointing kickoff to the final quarter of 2017.

Gross domestic product was unchanged from September, Statistics Canada reported Friday in Ottawa, weighed down by a 3.5% drop in production by oil sands companies. Economists surveyed by Bloomberg News had forecast a 0.2% gain for October.

The report may cast doubt on the economy’s ability to end a stellar year with any momentum. Economists, including those at the Bank of Canada, had anticipated growth would accelerate in the fourth quarter, after a slowdown in the middle part of the year.

The currency dropped by as much as 0.5% after the report. Investors are betting the Bank of Canada will raise rates as many as three times next year, as the economy continues to grow at a strong enough pace to eliminate excess capacity.

Economists forecast growth in the fourth quarter to pick up to an annualized 2.4% pace, from 1.7% in the third, and to expand by 2.2% in 2018. That’s above what the central bank considers non-inflationary growth.

Even with an anticipated second-half slowdown, Canada is headed for 3% growth this year. The country’s unemployment rate meanwhile has fallen to the lowest in a decade, helping to fuel household spending all year, and that continued to be evident in the October GDP figures. Retailers saw their production jump 1.1% in October, while wholesalers posted a 1.4% increase.

“The resilience in Canada is on the consumer side,” Robert Kavcic, senior economist at BMO Capital Markets in Toronto, said by phone. “Our view is they are going to hold off and wait to March” to raise interest rates, he said.

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