Canada's gross domestic product contracted by 0.2 per cent in November, as the economy was dragged down by cheap oil prices and unexpected weakness in manufacturing and mining.
Statistics Canada said Friday that for the 12-month period ending November as a whole, the economy expanded by 1.9 per cent — less than the 2.1 per cent that economists had been expecting.
It's also far less than the 2.6 per cent annual pace the U.S. economy is expanding at, according to a separate set of data released out of Washington on Friday.
The loonie, which has been on a slow decline since the fall of 2014, lost another half-cent on the news, falling to 78.66 cents US within seconds of the data coming out.
Statistics Canada says that during November, compared to October's level:
- Manufacturing output declined by 1.9 per cent.
- Mining was down by 2.5 per cent.
- Oil and gas extraction shrank by 0.7 per cent.
BMO economist Doug Porter said he was expecting declines in those sectors, but the numbers proved to be worse than even he had feared.
"While we were looking for declines in both, the drops were more intense than anticipated," he said in a note to clients early Friday.
Doubts on Q4 growth
The utilities sector was a rare bright spot in November, expanding by 2.4 per cent as demand for both electricity and natural gas rose.
The weak reading for November casts some doubt that the economy will manage to show growth for the fourth quarter as a whole, which includes December's data.
After eking out a gain of 0.3 per cent in October and then shrinking in November, the data for the end of the year are unlikely to show growth because much of the factors that made November weak — namely the decline in oil prices — continued to the end of 2014 and beyond.
"The weaker-than-expected headline implies Canadian GDP is looking soft in Q4," Scotiabank economists Derek Holt and Dov Ziegler said in a note to clients.
There's now a very real possibility that the economy will have shrunk for the quarter as a whole, for the first time in Canada since the end of 2009.
That won't be enough to start talking about the "R" word, however, as economists define a recession as two consecutive quarters of decline in GDP.
IMF on Canada's economy
The International Monetary Fund also revised its expectations for Canada’s economy downwards for 2015 in a report released Friday. It estimates growth of 2.3 per cent this year, down from its previous estimate of 2.4 per cent.
The IMF cited low oil prices and high household debt as threats to the Canadian economy. Its assessment is optimistic in comparison to forecasts from economists with TD Bank, who estimate just two per cent growth in 2015, but within the range of the Bank of Canada forecast, which is 2.1 to 2.4 per cent.
Hamid Faruqee, mission chief to Canada for the IMF, said he factored in falling oil prices, but sees some upside for the Canadian economy.
"The U.S. recovery looks strong to us, that’s going to providing a helpful boost to the economy in Canada," he told The Exchange with Amanda Lang.
"The Canadian dollar has weakened quite a bit with the drop in oil prices. That will benefit some of the other sectors in the Canadian economy."