MNI DATA ANALYSIS: Canada GDP Feels Housing Cool Down

By Yali N'Diaye

     OTTAWA (MNI) - As the Bank of Canada is monitoring the impact of the

combined tightening of macro prudential rules and monetary policy on housing, it

was provided with evidence Thursday such policies did slow growth in January,

more so than analysts had expected.

     Real GDP contracted 0.1% over the month, while analysts in a MNI survey had

expected a 0.1% gain.

     Goods-producing industries contracted 0.4%, the largest decline since

August 2017. Services were unchanged, failing to post a gain for the first time

since March 2016.

     Overall, however, the 0.1% GDP contraction resulted from divergent trends

rather than weakness across the board, with decreases and increases evenly split

across industries.

     --HOUSING WEIGHS

     Still, negatives prevailed, with a noticeable drag from both energy and

real estate.

     Real estate and rental and leasing was down 0.5%, the largest decrease

since October 2008. Home resales were pulled forward to the end of 2017 in

anticipation of tighter mortgage rules in effect since January, boosting output

of real estate agents and brokers by 6.4% in December. January saw a reversal,

with output in the latter category falling 12.8%, the largest drop since

November 2008. Legal and accounting services also suffered (-1.9%) as a result.

     Existing home sales were down 14.5% in January and a further 6.5% in

February. In fact, in light of tighter macro prudential rules and monetary

policy, as well as the most recent measures announced in British Columbia, which

harbors that large and tight Vancouver market, The Canadian Real Estate

Association revised down its outlook for both housing sales and prices. Sales

are seen down 7.1% this year, and the national average price is projected to

ease to C$498,100 this year, down 2.3%.

     --EX ENERGY STEADY

     Energy was the other large downward contributor, with a 2.1% decline in

January, the largest since May 2016, with oil and gas extraction was down 3.6%.

     Excluding energy, however, January GDP continued to expand at a steady pace

of 0.1%.

     --MIXED OVERALL

     In addition, half of the industries posted gains over the month, and

December growth estimate was revised up to 0.2% from 0.1%, taking away some of

the weakness of suggested in the headline figure. 

     There was even an upside surprise from manufacturing, which was up 0.7%

despite a 1.1% drop in the volume of shipments in January.

     Still, the data should keep the Bank of Canada on the edge as they add more

downside risk to its first quarter growth outlook.

     The central bank might in particular give itself more time to watch how

housing unfolds after the pull-forward of sales to latest 2017 and its reversal

in January and February were expected.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]