Weak Canadian dollar and GDP suggests JPMorgan said it best: 'There Will Be Blood'
The economy shrank in November and the loonie's under 80 cents. There's rough times ahead, Amanda Lang says
Tonight's first order of business: more bad news on the Canadian economy — and yes, we've already had plenty of it. There's that plunging price of oil (and the way it's taken the loonie way down) but there was supposed to be a silver lining.
Manufacturers, who suffered when the dollar and oil prices were high, were supposed to now reap the benefit, except that definitely did not happen in November. So now the only question is, has it happened since? Because if it doesn't, Canada's outlook just got a little bit worse.
— Amanda Lang
Canada's losing stretch continued today, with Statistics Canada reporting the latest gross domestic product data.
Canada's economy shrank 0.2 per cent in November. At an annualized rate, GDP expanded 1.9 per cent — short of the 2.1 per cent expected. The real sting came here, in manufacturing. Output fell nearly two per cent — the steepest drop in six years.
Surprising, since our weak loonie, lower oil prices and the booming U.S. economy are supposed to boost that sector. As one economist from BMO put it — "this was not supposed to happen." Mining, and oil and gas extraction suffered too, of course, due to the oil slump.
Today's report follows marginal growth of 0.3 per cent in October, which means it's in the realm of possibility that the economy shrank in the whole quarter for the first time since 2009. It would take two straight quarterly contractions for our economy to fall into recession.
The loonie sunk ever deeper on the news. It closed well below 79 cents US — its lowest level since March 2009.
With oil prices showing few signs of recovery, this could just be the tip of the iceberg. At least that's what a major U.S. bank is saying today. JPMorgan titled its report with the ominous warning: "There Will Be Blood."
In reference to the Bank of Canada's surprise interest rate cut last week, it says "the brief one-page statement mentioned 'oil' ten times. Governor Poloz is concerned about both the direct and indirect effects of the oil price rout. As the Bank has warned repeatedly, excessive consumer leverage and frothy home prices increase the economy's vulnerability to such shocks."
Friday's gloomy data points may just have been more evidence of that.