Canadian economy returns to growth in October, but momentum still weak

OTTAWA – Canada’s economy got back on the growth track in October, albeit in the slow lane after a couple of months of flat or falling economic output.

The country’s gross domestic product rose the minimum 0.1 per cent, about what economists had expected, as the goods producing segment of the economy continued to struggle.

That’s still better than September’s flat reading and August’s 0.1 contraction that contributed to Canada’s worst quarter of economic growth in over a year.

Statistics Canada said the major contributors during the month were wholesale trade, which rose 0.8 per cent from the previous month, and retail trade, which increased 0.3 per cent. There was also a pick-up in oil and gas extraction of 0.4 per cent, and utilities advanced by 1.2 per cent.

But factories continued to struggle, down 0.4 per cent, likely as a result of soft demand in global markets for Canadian manufactured goods. And with the housing market cooling, construction was down 0.1 per cent.

Bank of Montreal economist Doug Porter blamed part of the continuing weakness in the growth data on the NHL lockout, noting that the arts, entertainment and recreation component fell 1.6 per cent, following a 2.4 per cent slide in September.

“The NHL lockout piled on to what was already a slowing underlying Canadian growth rate in the fall,” he said.

“While most other categories picked up some of the slack, we expect the economy to struggle to push above one per cent annualized growth for all of quarter four, and are now calling for just 1.8 per cent GDP growth in 2013,” he said.

Although October was slightly better than the previous two months, economists in general saw the month as a soft beginning to the fourth quarter of the year, which ends Dec. 31.

The Bank of Canada had anticipated a stronger rebound from the third quarter’s 0.6 per cent stall, to 2.5 per cent. But that seems almost impossible at this point, analysts said, considering the continuing slow momentum in the global economy and concerns the United States won’t be able to reach a budget deal by the year’s end.

“This reflects the sluggish growth and the impact of the fiscal cliff on business investment in the United States, as well as the impact of high consumer indebtedness and softness in the housing market domestically,” said TD economist Dina Ignjatovic.

But she added Canadians can look forward to a stronger economy in 2013, particularly if U.S. politicians are able to reach a compromise that keeps most of the $600 billion of stimulus in place another year.

Still, economist Erin Weir of the Progressive Economics Forum stressed that this is no time for Bank of Canada governor Mark Carney, or his successor next June, to consider hiking interest rates.

Particularly, he noted, as the inflation rate in November dropped four-tenths of a point to 0.8 per cent, the lowest in more than three years.

Overall in October, the goods producing industries were flat, while the services sector gained 0.1 per cent

From a year ago, the goods industries remained in negative territory, down 0.1 per cent, while services contributed 1.7 per cent to economic growth.