MNI DATA ANALYSIS: Canada Disappointing GDP Challenges BOC>

By Yali N'Diaye

     OTTAWA (MNI) - Canada real GDP rose 0.4% in the fourth quarter on 

an annualized basis, a sharp slowdown from 2.0%, and the smallest 

expansion since the second quarter 2016, data from Statistics Canada 

showed Friday. 

     The data added downside risk to the Bank of Canada's outlook, which 

was based on a 1.3% annualized GDP growth in the fourth quarter. For 

2018 as a whole, GDP growth slowed to 1.8% from 3.0% in 2017, while the 

BOC had expected 2.0%. 

     On a quarterly basis Canada GDP edged up 0.1%, following a 0.5% 

expansion in the third quarter. 

     Energy explained a good part of the weakness, but it was not just 

an energy story, as household consumption continued to weaken, along 

with housing investment. 

     Analysts in a MNI survey had expected real GDP to grow at an 

annualized rate of 1.0% in the fourth quarter. 

     - LARGE ENERGY PRINT 

     On a monthly basis, GDP contracted 0.1% in December, following a 

similar performance the previous month, and handing off a weak start to 

the first quarter. Analysts had expected a flat output in December. 

     Output of goods-producing industries fell 0.7%, contracting for the 

fifth consecutive month for the first time since January-June 2009. 

Manufacturing fell 0.7%. 

     The services sector, which was flat in November, rebounded 0.2% in 

December. 

     As expected by the Bank of Canada, lower oil prices played an 

important part in slowing down the economy. 

     In fact, output excluding energy improved in December, when it 

edged up 0.1% after decreasing  0.1% in November. Energy was down 2.0%, 

the largest monthly drop since October 2017. Oil and gas extraction 

increased 1.5%, benefitting from the restoration of "some crude oil 

production capacity" in Newfoundland and Labrador after extreme weather 

and maintenance work in November. 

     However, lower oil prices and production cuts announced in early 

December drove down support activities in Alberta's oil and gas 

extraction subsector. Overall, support activities for mining and oil and 

gas extraction fell 16.8% in december, the largest monthly decline since 

March 2016. 

     - LOWER ENERGY EXPORTS 

     Lower oil prices also weighed on exports, which edged down 0.1% in 

the fourth quarter (-1.1% annualized). Exports had a slight negative 

contribution of 0.07 percentage points to the 0.4% annualized GDP. 

     Energy exports were down 0.6% and non-energy exports rose 0.1%. 

Still, a 0.1% gain shows exports are failing to pick up as much as the 

central bank would like to make up for the slowdown in household 

consumption. 

     - WEAKENING CONSUMPTION, HOUSING, INVESTMENT 

     Household consumption was up 0.2% in the fourth quarter, the 

smallest quarterly growth rate since the first quarter of 2015. The 

contribution to annualized GDP fell to 0.42 percentage points, the 

smallest since the second quarter 2012. 

     Housing investment also decreased, by 3.9%, the largest drop since 

the first quarter 2009. 

     So did investment, which fell 2.7%, including business investment, 

which was down 2.5%, challenging the BOC's growth rotation scenario. 

     Investment in engineering structures, where weakness in the oil 

industry would particularly show, fell 4.3%. 

--MNI Ottawa Bureau; email: yali.ndiaye@marketnews.com 

[TOPICS: MACDS$,M$C$$$]