1-31-18 9:53 AM EST | Email Article
By Paul Vieira 

OTTAWA -- The Canadian economy rebounded in November after stalling in October, led by a manufacturing sector that recorded its best performance in nearly four years as some auto-assembly plants resumed production following a brief shutdown.

Canada's gross domestic product, or the broadest measure of goods and services produced in an economy, increased 0.4% in November from the previous month to a seasonally adjusted 1.759 trillion Canadian dollars (about $1.427 trillion), Statistics Canada said Wednesday. The result matched market expectations, as provided by economists at Royal Bank of Canada, and marked the best one-month gain in economic output since May.

On a one-year basis, the Canadian economy advanced 3.5% in November.

Earlier in January, the Bank of Canada raised its benchmark interest rate by a quarter-percentage point to 1.25%, the third increase in seven months, on strength in the underlying economy. The unemployment rate is at a four-decade low, and 2017 marked the best year for job creation since 2002. Meanwhile, the latest inflation data indicate annual price increases are hovering near the central bank's target of 2%, and measures of core, or underlying, inflation continue to strengthen.

November's reading and the trend in inflation data "present evidence to somewhat hawkishly inform the BoC's data dependent posture in support of our forecast for another rate hike by spring," said Derek Holt, Bank of Nova Scotia economist.

The central bank said its economic outlook is expected to "warrant higher interest rates over time," with growth for 2017 expected to come in at 3% and 2.2% this year. GDP data for the fourth quarter of 2017 is scheduled for release on March 2.

The Bank of Canada has signaled, though, it would remain cautious on further rate increases given risks tied to the response of highly indebted households to steeper borrowing costs, and the uncertain fate of the North American Free Trade Agreement.

Prospects brightened somewhat this week about a renegotiated Nafta, after the U.S., Canada and Mexico emerged from the latest round of talks in Montreal to say some progress was made. Significant differences do remain, however, and officials are set for talks in Mexico City in late February, and tentatively in the U.S. in late March.

Canada's GDP report for November said the factory sector was the driving factor behind the 0.4% gain in output. Manufacturing increased 1.8% month-over-month, or the largest rise since February 2014.

The production of durable goods jumped 2.5%, or the biggest such gain in nearly six years, on a significant gain in auto manufacturing. Following four- straight months of declines, motor-vehicle manufacturing climbed 14.3%. This was in part due to the return to production of some plant capacity following shutdowns in September and October. Furthermore, motor-vehicle parts production rose 8.7% in November.

Also within manufacturing, chemicals rose 5.3% in November after three- consecutive monthly declines. Plant-maintenance shutdowns ended and there was stronger demand for pharmaceutical and medicine products, the data agency said of the sector's rise.

The November report showed a bounce back in manufacturing, "but to sustain further meaningful growth, we're going to need to see investment in export capacity -- something we're not convinced is coming in the near-term given the increased attractiveness of the U.S. in light of recent tax cuts, and serious concerns on the trade front regarding Nafta, " said Nick Exarhos, economist at CIBC World Markets.

Over all, the goods-producing side of the economy climbed 0.8%, more than retracing the previous month's 0.5% decline.

Canada's services-producing industries, which account for roughly two-thirds of total output, climbed 0.3% in November, on strength from the real-estate sector, and wholesale and retail trade.

Write to Paul Vieira at paul.vieira@wsj.com

Write to Paul Vieira at paul.vieira@wsj.com

 

(END) Dow Jones Newswires

January 31, 2018 09:53 ET (14:53 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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