Canada's Economic Growth Exceeds Expectations

OTTAWA (Reuters) – Canada's economy exceeded market expectations with 0.3% growth in October, led by increases in oil and gas extraction and manufacturing. However, gross domestic product likely contracted in November, data showed on Monday.

Analysts polled by Reuters had forecast a 0.2% month-over-month rise in October. September's growth rate was upwardly revised to 0.2% from an initial report of 0.1%, according to Statistics Canada (Statscan).

The stronger-than-expected start to the fourth quarter and the upward revision to September's growth rate could alleviate some concerns about Canada's economy. Growth in the third quarter missed the Bank of Canada's (BoC) forecast, and the central bank stated earlier this month that data suggested the economy may underperform its expectations in the last three months of 2024.

In a preliminary estimate for November, Statscan indicated GDP likely decreased by 0.1%. This contraction is attributed to declines in sectors such as mining, quarrying, and oil and gas extraction, along with transportation and warehousing. However, these declines were partially offset by increases in accommodation, food services, and real estate.

If the November forecast is confirmed and GDP remains unchanged in December, the economy would fall short of the BoC's 2% growth projection for the fourth quarter.

October’s growth was primarily driven by a rebound in the goods-producing industry, which rose 0.9% after shrinking for four consecutive months. The services-producing industries saw a slight increase of 0.1%.

Within the goods-producing sector, mining, quarrying, and oil and gas extraction expanded by 2.4% after three months of declines. Manufacturing rose 0.3% in October, driven by an increase in non-durable goods manufacturing.

In response to slower growth, the central bank lowered its key policy rate by 50 basis points to 3.25% earlier in December and indicated further reductions would be more gradual. The BoC plans to release fresh forecasts along with its next rate decision on January 29, just before Statscan's next GDP report.

Since June, the BoC has cumulatively slashed interest rates by 175 basis points as inflation returned to target. Money markets currently see a roughly 50% chance of a further 25 basis points cut in January.