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MNI: Canada GDP Unexpectedly Stalls As Firms Trim Inventories

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Canada's main banking district around Bay Street in Toronto.
OTTAWA (MNI)

Canada's gross domestic product unexpectedly stalled in the fourth quarter as companies slashed inventories, giving the central bank scope to keep interest rates unchanged next week following eight prior increases.

Output was 0.0% at an annualized pace, far less than than the market consensus for around 1.5% and the Bank of Canada's 1.3% estimate.

Companies pared inventory accumulation by CAD30 billion between October and December following a record build-up earlier this year, accounting for nearly the entire drag on growth, Statistics Canada reported Tuesday. Capital investment was the only other major category showing a drag, while household spending grew at a 2% annualized pace and lower imports provided a 12% boost to domestic growth.

There was some evidence the fourth quarter was a temporary setback, with StatsCan's flash estimate for GDP in the month of January showing a 0.3% increase. The fourth quarter ended with a 0.1% decline in December GDP, lagging the consensus expectation for an increase of 0.1%.

Bank of Canada Governor Tiff Macklem has said GDP may also be flat in the first three quarters of this year, helping re-balance an overheated economy and allowing him to pause rate hikes at 4.5% unless inflation goes off track again. Macklem has said he's likely to stay on hold unless there is an accumulation of evidence inflation isn't returning to target after reaching about 8% in June.

Today's report ends a phase of surprising resilience, where for most of last year the economy posted sustained growth even as some investors said a recession was looming. The last two job reports also showed unexpectedly large gains and inflation remains about 6%, which prompted speculation the Bank may have needed one more rate hike.

Statistics Canada on Tuesday also lowered its third-quarter growth estimate to an annualized 2.3% from the initial 2.9% reading.

MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com
MNI Ottawa Bureau | +1 613-314-9647 | greg.quinn@marketnews.com

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