MNI DATA PREVIEW: Canada Q4 GDP Likely Faded to 0.3%, 3-Yr Low

--BOC Has Said Persistent Slowdown Could Bring Rate Cut

By Greg Quinn

     OTTAWA (MNI) - Canada's economy likely almost stalled in the fourth quarter

with little chance of a sharp turnaround early this year to erase the chance of

a central bank rate cut, an MNI survey shows.

     GDP slowed to a 0.3% annualized pace from 1.3% in Q4, according to the MNI

economist median, which would be the slowest pace since Q2 2016. The consensus

matches the Bank of Canada's January estimate, made when Governor Stephen Poloz

said weaker domestic spending may open the door to cutting the G7's highest

interest rate of 1.75%.

     None of the forecasters see the economy contracting between October and

December, though some predict further weak growth in Q1. China's coronavirus

outbreak is further slowing trade and the government is struggling to clear

protesters who have blocked railway shipments for most of this month. Poloz told

reporters in January the crux of any rate cut is whether the slowdown becomes

persistent.

     --DISRUPTIONS

     Statistics Canada's report due at 0830EST Friday is a chance for investors

to decide how much of the weakness is temporary in a period where production was

hit by a CN Rail strike, a ruptured Keystone oil pipeline, a UAW auto strike,

and the permanent closure of GM's largest Canadian assembly line. With the next

rate decision on March 4, any unexpected weakness beyond the market forecast

could boost bets on a cut in the next few months.

     The report will bring "an unappealing composition of growth with

weaker-than-trend consumption, narrow gains in residential investment and

government spending and soft business investment and net exports," Royal Bank of

Canada strategists Mark Chandler and Simon Deeley wrote in a recent research

report. 

     Statistics Canada has already reported wholesale sales fell 1.5% in the

fourth quarter, the most since the last recession in 2009, and retail sales fell

0.2%. The trade deficit shrank towards the end of the quarter, suggesting a

smaller drag.

     Canada has also shown longer-lasting weakness like a recent slowdown in

hiring, plunging investment in Alberta's oil sands and years of trade deficits.

Manufacturing and wholesalers' inventories are also close to the highest in

decades, suggesting weaker future sales.

     One bright spot remains Canada's housing market, fuelled by a record

build-up of debt. BOC officials have said the merits of any insurance rate cut

must be weighed against the potential for a correction later that would create

an even bigger risk to meeting its 2% inflation target. For now, inflation has

climbed to 2.4% in January from a year ago. 

     The fourth quarter likely ended with a 0.1% expansion for December, the MNI

Median shows, following a 0.1% gain in November and a 0.1% contraction in

October.  

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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