Factory Revival Leads Best Canada GDP Growth in Six Months

(Bloomberg) -- Canada’s gross domestic product grew at the fastest pace in six months in November, a signal the economy will remain close to full output as the central bank weighs higher interest rates.

Output expanded 0.4 percent from October with about half the gain coming from manufacturing as temporary shutdowns ended at automobile and chemical plants, Statistics Canada said Wednesday from Ottawa. Smaller contributions were spread across another 16 of 20 industries tracked by the agency including real estate, oil and gas extraction and wholesaling.

The gain follows a stall in the previous month and leaves Canada on track for annualized growth of about 2 percent in the fourth quarter. Growth will likely remain at around that pace for 2018. Bank of Canada Governor Stephen Poloz has said he will be cautious in assessing new data to figure out future moves after three rate increases since July.

Last year was marked by a burst of growth in the first half and a slowdown in the second half, as spending by indebted consumers powered ahead and business investment revived following an oil shock two years earlier. Output grew at about a 4 percent annualized pace in the first two quarters of the year, and by 1.7 percent between July and September.

‘Broad’ Strength

Even with a second-half slowdown, Canada is headed for 3 percent growth for 2017, more than double the 2016 pace and expected to be fastest among Group of Seven nations. Other signs Canada’s economy is close to full output include the lowest jobless rate in modern records and consumer price inflation that’s close to the central bank’s 2 percent target.

“You are seeing broad-based strength across the bulk of the economy; that’s more encouraging to me than just the headline alone,” Brian DePratto, senior economist at Toronto-Dominion Bank, said by phone. The GDP figures along with labor market strength suggest the economy is close to full output and justifies another rate increase by July, he said.

Canada’s dollar traded for C$1.2285 against its U.S. counterpart at 9:33 a.m. in Toronto, 0.4 percent stronger than yesterday and the highest since September. Two-year government bond yields were little changed at 1.84 percent.

The strongest gain was in manufacturing with a 1.8 percent jump the biggest since February 2014. Motor vehicle production climbed 14 percent in November, recouping part of a 22 percent fall over the last four months as plants were shut down. Chemical output gained 5.3 percent after three prior declines.

Oil and gas extraction also benefited from a move back to regular production with a 1.6 percent increase, Statistics Canada said. Real estate and leasing climbed 0.4 percent from October, as the contribution from agents and brokers gained for a fourth consecutive month.

Other Details

• The November expansion matched the median forecast in a Bloomberg economist survey
• Retail trade growth slowed to 0.6 percent in November from 1.2 percent in October, while wholesaling climbed 0.5 percent
• Public-sector output also bounced back from a temporary setback, gaining 0.2 percent following the end of a college strike in Ontario, Canada’s most populous province
• The finance and insurance industry expanded for the first time in five months with a 0.3 percent increase
• Statistics Canada in a separate report said that its index of manufacturing prices fell 0.1 percent in December while its raw material costs dropped 0.9 percent
• GDP grew 3.5 percent in November from 12 months earlier

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier, Steven Frank

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