Bank of Canada Governor Stephen Poloz insisted that the Canadian economic recovery remains on the track outlined by the central bank, despite the latest in a series of disappointing growth indicators.
In a press conference following Tuesday's release of the bank's twice-yearly Financial System Review, Mr. Poloz cited "special factors" for the latest drop in manufacturing sales, the third-straight monthly decline in a sector that is expected to help lead the country's recovery from the oil shock. Earlier in the day, Statistics Canada reported that manufacturing sales fell 1.1 per cent in October from September, led by a 5.7-per-cent slump in petroleum and coal products.
Mr. Poloz pointed out that a big contributor to the decline was the maintenance and upgrade shutdown at the Irving Oil petroleum refinery in Saint John, which cut output from the huge facility in half for the entire month, as well as parts of September and November.
Similarly, he noted that the decline in September gross domestic product, reported this month, was worsened by a fire that shut down much of the production from the giant Syncrude oil sands facility for the month.
"There are some special factors at work in some of these that we should not lose sight of," he said.
"There have been some data points that have come out on the soft side … There have also been some on the plus side," he said, noting that consumer-oriented segments of the economy, such as auto sales and housing, have contributed strength.
Mr. Poloz indicated that nothing in the data has dissuaded him from the Bank of Canada's most recent forecasts – issued in its quarterly monetary policy report in October and reiterated in its recent interest-rate decision two weeks ago – that GDP would grow at a 1.5-per-cent annualized rate in the fourth quarter, before accelerating to 2 per cent for 2016. GDP grew 2.3 per cent annualized in the third quarter, after declining slightly in each of the first two quarters of this year.
"Although Q3 was quite good, it was not necessarily the new trend line. We expected Q4 to be a little softer than Q3," he said. "So far, things have been more or less in line with the dynamic that we predicted."
The bank will formally update its economic forecasts in its next monetary policy report on Jan. 20.
Statistics Canada's manufacturing report painted a mixed but overall weaker picture in the first month of the fourth quarter, with sales down in 12 of 20 major industry sectors. In addition to the weakness in petroleum and coal products, the volatile aerospace segment tumbled 10.3 per cent, and machinery sales fell 4.6 per cent. But the big motor vehicle segment gained 4.9 per cent.
"The soft volumes suggest a negative contribution from factories to October GDP. The results add to evidence that it will take more than a weak Canadian dollar to prop up an ailing manufacturing sector," National Bank of Canada senior economist Krishen Rangasamy said in a research note.
Still, Mr. Poloz remains optimistic that the Canadian economy will gain momentum in 2016. The bank expects growth in exports and investment in non-resource sectors to take over the economic lead thanks to a buoyant U.S. economy, increasingly outweighing the effects of the resource slump.
"We do think that the positives will be dominant in 2016," he said.
Mr. Poloz also reflected on what has been a tough year in his office, highlighted by a major oil price shock, a first-half economic contraction, a surprise interest-rate cut last January for which he received criticism and a second rate cut in July.
"It was a challenging year, of course," he said. "At the same time, I'm very happy with the way our own staff managed to stick-handle through that to figure out what would happen."
"But in the end, it still leaves us with another year in the 'serial-disappointment series,'" he said. "We thought that we'd be farther ahead by now."