A blip in oil production was all it took to put Canada’s economy in reverse in November, highlighting the fragile state of the rebound.
The national economy slid 0.1 per cent in the month, surprising analysts who had called for a gain of 0.2 per cent. It was squeezed mainly by the oil patch, where production fell as a result of maintenance shutdowns.
The disappointing result likely means growth for the final quarter will fall short of already muted expectations, including the Bank of Canada’s forecast of 2 per cent on annual basis.
The latest numbers show the economy is walking a tightrope without the net typically provided by a rebounding U.S. economy, and amid questions about Chinese demand for energy, base metals, lumber and other resources.
“The main message here is that it really doesn’t take much to knock this economy off track,” said Doug Porter, deputy chief economist at BMO Nesbitt Burns in Toronto.
“It shows that there isn’t much underlying strength. It just takes weakness in one particular segment to pull the economy down.”
The U.S. economy, despite a few encouraging signs, has yet to emerge from a deep freeze, prompting talk of possible further monetary stimulus this year from the Federal Reserve Board. The Chinese juggernaut and other key emerging markets such as India and Brazil are also seeing their growth rates slow. And through it all, the European debt crisis hovers darkly over the entire global recovery.
November’s unexpectedly poor showing followed a flat October. The economy had gained ground in each of the preceding four months. That modest growth, coupled with stronger manufacturing numbers and higher consumer spending, had sparked a bit of optimism about prospects for 2012.
Manufacturing and retailing “tend to be two of the more cyclical components of the economy,” Mr. Porter said. “To have them both clicking along at a pretty healthy pace over the fall and not translating into a decent performance by the economy is a disappointment.”
The culprit in November was the oil sector, where production fell by 2.5 per cent, as a result of shutdowns for maintenance, Statistics Canada reported. Oil and gas drilling activity was also lower and exports declined.
Natural gas producers face a glut on the market, stemming from reduced demand related to warmer winter weather in key northeastern U.S. markets and sharply increased U.S. output.
But other sectors, including construction, wholesale trade, finance and insurance, also declined. One of the few bright spots was retail activity, which rose 0.6 per cent. Manufacturing also climbed 0.6 per cent, but economists had predicted more.
After a relatively strong third quarter, “we were expecting moderation in the fourth quarter and we’re getting just that,” said Krishen Rangasamy a senior economist with National Bank Financial in Montreal.
He forecasts a rebound in energy and utilities “sooner rather than later,” but acknowledged that the broader economy faces “tepid” growth through March. Still, the Canadian economy “should stay above water this year,” with modest expansion of about 2 per cent, he said.
“The slowing of Canada’s economy is unfolding as we expect,” said Arlene Kish, an economist with IHS Global Insight. “Economic output for the last quarter of the year is still very sluggish and will likely increase in the low 1-per-cent range.”