Canadian economy stagnant at year-end

November 2018 was not a good month for the Canadian economy.  Statistics Canada reported this morning that real GDP fell by 0.1 percent in the month.  This was the second such contraction in three months, interrupted by a 0.3 percent gain in October.  There is little reason to think that the picture improved significantly in December, so it looks likely that GDP for Q4 as a whole will come in flat.  Some business journalists are already starting to talk up the possibility of a recession.

Although 13 of the 20 sectors in the StatsCan data showed growth in November, there were some conspicuous losers. Output in the goods-producing sectors fell by 0.3 percent in the month, the third decline in four months.  Oil output was particularly weak, in part because of weather conditions off the east coast, but also in part because of very low prices for Alberta crude, which led to widespread well shutdowns.  Since this weakness preceded the Alberta government's imposition of output cuts, it seems safe to assume that this sector continued to represent a drag on overall growth through December and into the new year.

Elsewhere in the good-producing segment, manufacturing output posted a 0.5 percent fall in the month, its third fall in four months.  Construction output was also down, in this case for the sixth consecutive month. Output in the service sector and the public sector were essentially flat in the month.

Today's data all but ensure that the Bank of Canada will remain on the sidelines for many months to come: a further rate hike before mid-year is surely completely off the table.  The more dovish tone sounded by the US Fed earlier this week will make it easier for the Bank to keep rates unchanged.  That said, talk of a recession is surely premature, though it no longer seems entirely far-fetched to suggest that the next policy move, when it comes, might be a rate cut.

The political implications of the data are intriguing.  With Parliament back in session, the campaign for the October Federal Election is in full swing, and if the economy is entering a softer phase, the Liberals' re-election chances will take a hit.  And here in Ontario, Premier Doug Ford is warning that the Federal carbon tax that comes into effect in April will trigger a recession.  That's almost certainly wrong, but Ford is saying it loudly and often, and it will be no surprise if his counterpart in Ottawa, Andrew Scheer, starts focusing on the same message.

Just for fun, here's a link to the CBC website report on the GDP data. Ignore the article itself -- if you're a connoisseur of ignorance, venom and bad grammar, just scroll through the comments!