Canada’s economy unexpectedly shrinks as oil production stalls

Canada’s economy unexpectedly contracted by a tenth of a percent, or 0.1 per cent, in August after posting zero growth in July, Statistics Canada said Friday.

The back-to-back months of lacklusture output followed surprising strength through the first six months of the year.

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August’s contraction was led by a surprise fall in oil and gas extraction and a not-so-surprising slump in manufacturing activity – two areas being relied on to support a “rotation” away from consumer and household-led growth toward exports and business investment.

Oil slowdown

Led by Alberta’s oil patch, crude production dipped by 2.5 per cent, CIBC economists said — a second consecutive monthly decrease. Rigging and drilling services that support production were down 4.3 per cent.

“We’ll admit we were caught off-guard by the weakness in resources,” the bank economists said in a note. Still, CIBC’s Nick Exarhos said the slowdown had more to do with companies shutting down facilities for upkeep, rather than because of sharply falling oil prices, which occurred after August.

The patch’s output is likely to bounce back “as key facilities come back online after summertime maintenance,” he said.

Even with world oil prices falling by 20 per cent since the summer, Canadian producers aren’t expected to meaningfully curb production just yet, Exarhos said later by phone.

CIBC expects oil to recover some ground near the end of the year, heading back above US$90 a barrel.