OTTAWA — Canada's gross domestic product rose by an unexpectedly strong 0.3 per cent in October, which led several economists to consider revising their estimates for the final quarter of 2014 - although they also warned that they're less bullish about 2015 due to a drop in commodity prices, especially for oil.
Statistics Canada's monthly GDP report showed that October's growth was broad-based, affecting several major sectors of the economy - especially oil and gas extraction, mining and manufacturing. That was partly offset by weakness in agriculture and forestry sector and utilities.
Economists had estimated the Canadian economy would grow by 0.1 per cent during the month, following September's growth of 0.4 per cent.
CIBC economist Avery Shenfeld wrote that a 0.7 per cent gain in manufacturing was an unexpected contributor and suggested that Canada's economic growth in the final quarter of 2014 could be better than expected.
“While we don't see the resource strength lasting into the new year, for now, there's room for the economy to eclipse our 2.5 per cent Q4 forecast,” Shenfeld wrote in a brief note.
Other economists also indicated they were more optimistic for 2014's “home stretch” in light of October's performance, with one of the most bullish estimates coming from CIBC's Nick Exarhos who wrote that “growth in the fourth quarter is now looking to track something close to three per cent, a half-point above our prior forecast.”
“But the real worries lie in what the collapse in crude means for next year,” Exarhos wrote.
A number of companies in the Alberta oilpatch have announced recently that they planned to reduce activities and capital spending next year as a result of the low price for oil, which is near five-year lows. A benchmark crude future is currently below US$56 per barrel, down from US$105 or more in the summer.
The Canadian dollar initially fell against the American currency Tuesday as the greenback surged following an unexpectedly strong revision of U.S. third-quarter gross domestic product. Later Tuesday, the loonie strengthened and was up slightly at about 86 cents US in mid-morning trade.
Statistics Canada's monthly report on GDP, issued earlier Tuesday, said overall goods production in October was up 0.4 per cent from September, while output from service industries rose 0.3 per cent.
The oil and gas extraction sector grew 1.5 per cent in October, on top of a 3.6 per cent increase in September. Mining and quarrying also rose by 1.5 per cent, with advances in potash more than offsetting declines in copper, nickel, lead and zinc.
However, prices for several major commodities - including oil, copper and gold - have declined sharply in recent weeks.
Among the sectors showing declines in October was wholesale trade, which declined 0.2 per cent, while retail trade was flat overall in October compared with the previous month.
There was also a 1.8 per cent decline in the Canadian utilities industry as demand for electricity and natural gas fell, while the agriculture and forestry sector decreased 1.4 per cent - mainly because of lower crop production.
TD economist Jonathan Bendiner noted that the Canada's service sector was propped up in October by a 2.6 per cent surge in educational services, which Statistics Canada said reflected a return to normal levels of activity following a labour dispute in British Columbia in September.
“Corporate profits are forecast to decline through the first half of 2015, which will translate to weaker capital spending - especially in the energy sector. That said, Canada's export sector is forecast to remain strong. A weaker loonie combined with sustained strength in U.S. demand and cheaper energy inputs should support manufacturing activity.”
“The tourism sector is also forecast to record healthy gains over the next two years,” Bendiner said.