Canada’s economy unexpectedly shrank in October, weighed down by the worst manufacturing output in nearly three years, Statistics Canada said Friday.
Gross domestic product contracted by 0.3% for the month, the first decline since wildfires devastated a swath of Fort McMurray, Alta., in May and dealt a severe blow to the province’s energy producers.
The oil and gas sector had a particularly weak performance in October, slipping 2.5% after four monthly increases.
But even more remarkable was a 2% decline in manufacturing — the biggest monthly drop since December 2013.
CIBC economist Nick Exarhos said Canada has been suffering a loss of manufacturing capacity since the 2008-09 global recession and “anemic” trade volumes recently that make it difficult to benefit from favourable exchange rates.
“Today’s report highlighted that factory output on the year is essentially flat, mirroring what we’re seeing in export volumes,” Exarhos said.
Exarhos said it’s not the time for the Bank of Canada to follow the U.S. Federal Reserve in raising benchmark lending rates.
“We still need low rates in Canada to stimulate an economy that’s recovering from the collapse in energy prices and energy investment.”
BMO chief economist Doug Porter said there shouldn’t be too much concern over a single month.
“Keep in mind, this (October report) followed four very solid reports in a row,” Porter said.
He added that there are only a few indicators available yet for November but they don’t point to another monthly decline.
“I think the broader landscape is growth of a little less than 1.5% this year (as a whole) and a little bit better than 1.5% next year.”
Weakness in Canada’s goods-producing sectors, which contracted 1.3% overall in October, was only partially offset by growth in some service-producing industries, which were up 0.1% overall.
Other industries including finance and insurance services, accommodation and food services, construction and agriculture also retreated.
Real estate and rental and leasing service rose 0.4%. Wholesale trade and retail trade were up 0.6% and 0.7%, respectively.
TD senior economist Brian DePratto said the result was disappointing but should be taken in a broader context.
“Despite the scale of the pullback, it was not sufficient to undo September’s healthy growth, which was revised up to 0.4%,” he said in a research note.
September’s growth had initially been pegged at 0.3% by Statistics Canada.
Economists had generally expected October to be a flat month with zero growth, according to Thomson Reuters data.