Canada: Cutting Growth Forecasts

November GDP data is likely to slow Canada’s economic performance, ending 2018 in a pretty disappointing fashion. Is this more than just a soft patch? We think so, and are revising down our growth expectations for this year.


After a few months of subdued Canadian growth, a much-needed boost arrived in October (0.3% month-on-month), but we aren’t expecting any upside surprise in November. Our monthly GDP forecast is -0.1%, which would bring the annual figure to 1.6%.

Signs of an economic soft patch are creeping through. The majority of major economies are set to undergo a similar slowdown this year – including the US. But Canada will slow possibly more than we expected due to the below-par performance of the energy sector, and this weaker outlook will likely linger. This forms a large part of why we’ve revised down our 2019 growth expectations from 2.1% to 1.8%.

Oil extraction and exports suppressed due to energy sector issues

Canada’s energy sector has suffered from transportation constraints and inventory build-ups, which is suppressing oil extraction and exports. This can be seen in the November trade data. The deficit widened even further, largely due to a decline in exports (-2.9% MoM). These factors holding the oil industry back also contributed to Western Canada Select (WCS) trading at a deep discount to benchmark oil prices back in late-2018.

the outlook for the energy sector is fragile and it will likely contribute less to growth this year

Since then, the Alberta government announced oil production cuts, which will take effect from January this year. Nevertheless, the reduction in output – despite lifting oil prices in Western Canada, has left the outlook for the energy sector fragile and it will likely contribute less to growth this year.  

Robust manufacturing sector should support growth despite November knockback

The temporary shock to oil prices, which intensified in November, appears to have fed through to manufacturing. November saw significant month-on-month declines in wholesale, retail and manufacturing sales (-1.0%, -0.9% and -1.4%, respectively), with the latter, reportedly dragged down predominantly by lower petroleum prices.

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