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Flat October GDP growth marks slow start for Q4, may lead BoC to cut rate

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 23, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - Statistics Canada’s data released today showed Canada's economy didn't grow in October. The data noted that the economy received support from gains in the resource sector which helped to offset declines in factory production and consumer spending. If it was not for the mining sector the economy would have contracted this month as well.

    The data dashes hope that the economy had recovered in October after contracting 0.5 per cent in September. Also, it marked a weak start for the fourth quarter and growth can be expected to be flat in the last quarter of this fiscal.

    Commodity-based industries like mining, quarrying and oil and gas extraction grew slightly in October after falling sharply in September. Mining, quarrying, and oil and gas extraction rebounded in October, rising 0.7. The use of non-conventional sources of oil such as the Alberta oilsands increased 0.8 per cent after having recoded a 10.6 per cent drop in September. The public sector also showed some improvement.

    The small gains recorded in the public sector and in the commodity based industries were however offset by declines in manufacturing, retail trade, and utilities. Spending on natural gas and electricity also fell as the weather was not harsh in the weeks before Halloween. The finance and insurance sector fell for a third consecutive month. In October it fell 0.1 per cent.

    The Bank of Canada estimates 1.5% growth for Q4. The central bank expects GDP growth to moderate in the fourth quarter of 2015 before moving to a rate above potential in 2016. The BoC left its interest rate unchanged at 0.5% at its last meeting. It also stressed that the economy will continue to be supported by the loose monetary policy and lower currency value as well as the US recovery.

    However, after the dismal growth in September and flat growth in October, have raised doubts with respect to the BoC outlook. Also, poor growth figures for October will likely weigh on the Canadian currency which is already under pressure from the sharp decline in oil price. The BoC might thus choose to ease further in 2016 to spur growth.

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