Canadian GDP contracted by 0.3% in October, ending a four-month string of gains.
The decline in output was led by the goods-producing side of the economy, which saw output fall 1.3% on the month. Leading the decline was manufacturing, where output fell 2.0% on widespread declines among the sub-categories. Statistics Canada noted that the decline reflected a lower volume of exports (October trade volumes: -0.7%). Mining, quarrying, and oil and gas extraction output fell 1.2% after a string of robust gains in prior months.
Services activity held up once again, delivering a 0.1% gain on the back of retail trade (+0.7%) and wholesale trade (+0.6%). Real estate and leasing (+0.4%) also performed well, while finance and insurance (-0.5%) declined for a third consecutive month.
Some pull-back in the Canadian economy was likely for October in light of strong gains in prior months and the weak October trade data. Indeed, today's report was disappointing by almost any measure, with the scale of the retrenchment in activity larger than analysts expected. That said, the October GDP figures should be taken in the broader context. Despite the scale of the pull-back, it was not sufficient to undo September's healthy growth, which was revised up to +0.4%. Indeed, while today's report does provide a soft start to the fourth quarter, the strong September figures help offset this somewhat - we continue to expect above-trend GDP, indicative of an economy that continues to move in the right direction, albeit slowly.
From the Bank of Canada's perspective, today's report is likely in line with expectations. Per the October Monetary Policy Report, a more moderate pace of growth was expected going forward after last quarter's healthy rebound. While the risks to monetary policy remain skewed towards further easing, the October GDP numbers are consistent with the Bank of Canada maintaining its policy interest rate at 0.50% for the foreseeable future