Real gross domestic product inched up by an annualized 0.3 per cent, Statistics Canada said Friday, matching what the Bank of Canada and private-sector economists had expected.Adrian Wyld/The Canadian Press
The Canadian economy nearly ground to a halt in the final quarter of 2019, and the few flickers of momentum could be short-lived as the world contends with the coronavirus outbreak.
Real gross domestic product inched up by an annualized 0.3 per cent in the quarter, Statistics Canada said Friday, matching what the Bank of Canada and private-sector economists had expected. For the year, real GDP rose by 1.6 per cent, marking a slowdown from 2018’s 2-per-cent pace.
But while output perked up in December, the Canadian economy is now grappling with fresh disruptions –including rail blockades and COVID-19 fears – that could hinder any swift recovery to start 2020. As such, an increasing number of market watchers are betting the Bank of Canada will cut interest rates, with traders as of Friday afternoon pricing in an 80-per-cent chance that happens next week.
“We can’t rule [a rate cut] out” on Wednesday, said Brian DePratto, senior economist at Toronto-Dominion Bank. “It wouldn’t be a huge shock, but the overall balance favours April over March.”
A weak quarter was hardly surprising given a number of temporary disruptions, including the week-long Canadian National Railway Co. strike in November, poor weather in parts of the country and the partial shutdown of the Keystone pipeline in late October and early November after a leak in the United States. The 0.3-per-cent gain was the weakest quarterly result since 2016.
In particular, business investment and trade activity were notable drags on the economy, with exports falling by an annualized 5.1 per cent. Consumer spending expanded at an annualized 2-per-cent rate, or strong enough to ensure that overall growth was positive.
December brought some relief. After some temporary events faded, GDP climbed 0.3 per cent from November, delivering a stronger end to 2019 than many had expected. The manufacturing sector, for instance, bounced back from three consecutive months of declines by posting a 0.4-per-cent gain.
“If we hadn’t had coronavirus, rail disruptions and all these other factors in the first quarter, we might have been talking about positive tailwinds going into the year,” Mr. DePratto said. “Unfortunately, it’s not looking that way.”
The coronavirus outbreak has now spread to more than 50 countries, forcing some companies to cut back on operations and leading to considerable losses on equity markets. On Friday, Shopify Inc. cancelled an annual conference in Toronto, while Amazon.com Inc. banned all non-essential employee travel within the U.S., adding to previous restrictions.
While the ultimate cost of COVID-19 is uncertain, it’s widely expected to have some effect on Canadian output. The Conference Board of Canada on Thursday said “there is little doubt that Canada’s economy will be impacted,” citing hits to tourist spending and seafood exports.
“It is by no means a foregone conclusion that the virus will spread widely in North America,” said Douglas Porter, chief economist at Bank of Montreal, in a note to clients on Wednesday. “But even in that unfortunate scenario, the economic damage would likely be equivalent to a short, sharp, shock to growth, and activity would likely recover quickly.”
U.S. Federal Reserve chair Jerome Powell issued a brief statement on Friday, saying the coronavirus presents “evolving risks to economic activity,” but that the Fed would “use our tools and act as appropriate to support the economy.”
Even before coronavirus fears, there were mounting expectations the Bank of Canada would cut interest rates to support a sluggish economy. The bank’s policy rate has been locked at 1.75 per cent since late 2018, despite a recent bout of easing by other central banks, such as the Fed. In January, Governor Stephen Poloz said the door is open to a rate cut.
However, there’s little insight into how the bank is weighing newer economic headwinds, Mr. DePratto said. Further, he noted the bank won’t be releasing its monetary policy report on Wednesday – a news release will be issued, with no news conference to follow – and Mr. Poloz will be speaking a day after the rate decision.
“I really think what they’re going to do is set a [rate cut] up for April,” he said.
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