(Adds details on sectors, economist commentary)
By Leah Schnurr
OTTAWA Dec 23 The Canadian economy contracted
in October as the manufacturing sector saw its biggest decline
in nearly three years, raising the risk fourth-quarter growth
could slow more than the Bank of Canada anticipates.
The gross domestic product fell 0.3 percent in October, data
from Statistics Canada showed on Friday, below economists'
expectations for no growth.
The decline came after four consecutive months of expansion
and supported forecasts the economy slowed at the end of the
year following a strong rebound in the third quarter.
Although the fourth-quarter is still tracking at around 1.5
percent, which is what the Bank of Canada expects, the
underlying weakness in the economy puts that forecast at risk,
That will keep the central bank dovish heading into the new
year. After cutting rates twice last year, the bank is expected
to hold steady until 2018, though some see the possibility of
"The uneven pace of the Canadian economic recovery after the
oil shock gives them reason to continue on with their dovish
message," said Nick Exarhos, an economist at CIBC Capital
The Canadian dollar touched a five-week low against the
greenback following the data and was recently trading at
C$1.3530 or 73.91 U.S. cents.
The goods-producing part of the economy drove the weakness,
ending a four-month run of gains and led by a 2.0 percent
decline in manufacturing, the biggest drop since December 2013.
Manufacturers were likely adjusting after a build up in
inventories, suggesting the decline will be temporary, said
Arlene Kish, senior principal economist at IHS Global Insight.
The drop in manufacturing was widespread, led by a decrease
in petroleum and coal manufacturing as production was hurt by
maintenance at some facilities.
Machinery manufacturing also declined, pointing to the weak
business investment environment. Overall, manufacturing of both
durable and non-durable goods was down.
Oil and gas extraction was down 2.5 percent, also pulling
back after four months of gains. U.S. crude prices
declined by 2.9 percent in October after a nearly 8 percent
run-up in September.
Construction fell 0.5 percent, the fifth decline in six
months. Residential construction fell 1.0 percent as builders
broke ground on fewer homes.
Overall, all of the goods-producing sectors fell, something
that does not typically happen at the same time and lends
credence to the idea of the decline being temporary, said Kish.
"I'm really hoping it's a bit of a blip."
(Additional reporting by Fergal Smith in Toronto; Editing by
Jeffrey Benkoe and Andrew Hay)