November’s GDP growth offers little optimism of fourth-quarter rebound

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Economists hold out little hope that the Canadian economy will show much, if any, growth for the final quarter of 2015, despite fresh numbers for November showing that the economy rebounded from its early-autumn slump.

"We needed a rebound in Canada, just to keep the fourth quarter from being the third negative quarter for the year," Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, wrote in a research note.

Statistics Canada reported Friday that Canadian real gross domestic product rose 0.3 per cent month over month, the economy's first growth in three months. GDP was flat in October, and sank 0.5 per cent in September.

The November result matched economists' expectations, after previously released indicators pointed to a moderate bounce in several sectors from their weakness in recent months. The manufacturing sector grew 0.4 per cent in the month, after two straight months of declines. Wholesale trade gained 1.3 per cent to snap a four-month losing streak. Retail trade gained 1.2 per cent, after it slipped 0.2 per cent in October.

And the beleaguered oil and gas production sector posted its second straight month of growth, up 2.1 per cent, as it continued to recover from a sharp decline in September, owing to a fire-related shutdown at the huge Syncrude oil sands facility in Alberta – a slump that was a major contributor to September's GDP decline.

The goods-producing side of the economy gained 0.4 per cent month over month. The services-producing side rose 0.2 per cent.

But despite the brighter November, most experts believe the economy achieved little or no growth in the sluggish fourth quarter, weighed down by the slowing pace of the U.S. recovery and persistent weakness in commodity prices.

The U.S. Department of Commerce released its first estimate of fourth-quarter GDP Friday morning, saying the economy grew at an annual pace of just 0.7 per cent in the quarter, a dramatic slowdown from 2 per cent in the third quarter. The estimate, which is subject to two revisions over the next two months, is slightly weaker than economists had expected. Growth was hurt chiefly by slowdowns in personal consumption and business investment, both of which suggest that U.S. demand for Canadian exports slowed significantly in the quarter.

For all of 2015, the U.S. economy expanded by 2.4 per cent, matching 2014's pace. The economy has enjoyed solid domestic consumption, but its strong currency increasingly weighed on demand for its exports as the year progressed, and that has contributed to a slowing of business investment.

Despite Canada's November turnaround, economists noted that year-over-year growth was a slim 0.2 per cent, underlining what a difficult year it was for the Canadian economy. Real GDP fell in each of the first two quarters of the year, before rebounding to 2.3-per-cent annualized growth in the third quarter. But, given the tepid growth seen so far for the fourth quarter, combined with the low starting point following September's slump and the weakness in commodities in December, economists say the economy will be lucky to show any growth at all for the quarter as a whole. GDP for the first two months of the fourth quarter was 0.2 per cent lower than the total for the first two months of the third quarter.

"Assuming 0.2-per-cent monthly growth in December, the economy is set to post a flat [reading] in the fourth quarter," National Bank of Canada economist Matthieu Arseneau said in a report.

And the generally sluggish end to 2015 hasn't generated much optimism about growth prospects for the early part of 2016, either.

"The underlying story remains an economy that is struggling to post sustainable growth," Douglas Porter, chief economist at Bank of Montreal, said in a research note. "We suspect December was just a so-so month for growth, and the first quarter faces a tough uphill battle amid the deep sag in oil and other commodity prices, as well as the stumbling start to the year for financial markets generally, and falling business and consumer confidence."