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Title : Loonie takes a dive as GDP numbers show economy finished 2018 with a thud
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Loonie takes a dive as GDP numbers show economy finished 2018 with a thud

Canada's economy shrank by 0.1 per cent in December and got smaller in three of the previous four months.

Statistics Canada reported Friday that the service sector eked out a 0.2 per cent expansion in December, but that was offset by a 0.7 per cent decline in goods-producing industries.

Manufacturing shrank by 0.7 per cent, its fourth contraction in five months. Construction, meanwhile, shrunk seven months in a row — the first time that has happened in almost three decades.

Overall, the oil and gas shrank by 0.3 per cent, while support activities for mining and oil and gas fell by 16.8 per cent, the largest monthly decline since March 2016. 

"The impact from mandatory oil curtailment in Alberta will deepen within the Q1 GDP data," TD Bank economist Brian DePratto said after the numbers came out. "Things are probably going to get worse before they get better."

There were a few bright spots, as wholesale and retail trade, transportation and warehousing, and the finance and insurance sectors all expanded during the month.

On an annualized basis, December's numbers mean the economy expanded at a 0.4 per cent pace in the fourth quarter as a whole. That's a sharp slowdown from the two per cent pace in the previous quarter, and the slowest growth since early 2016. 

For comparison purposes, the U.S. economy grew by 2.6 per cent in the last quarter of 2018.

While he described the slowdown as "transitory," Scotiabank economist Derek Holt said the bleak close to 2018 could give the government a good excuse to include stimulus measures in the federal budget set for March 19.

Manufacturing output has now declined in four of the past five months. (Jeff Kowalsky/Bloomberg )

"I wouldn't be surprised to see the emphasis upon quick shots that get stimulus immediately out the door, like more cash infusions for households as one option," he said. "There are perils to providing such stimulus, but that debate among economists will play second fiddle to the political expediency."

The bleak picture sent the loonie tumbling, down almost a full cent to as low as 75.53 cents US at one point.

"If you're the Bank of Canada, it's another reason to hold off on raising interest rates for a while," said Nathan Janzen, an economist with the Royal Bank of Canada.

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