WATCH: The Canadian economy shrank in the first quarter. While the drop wasn’t as big as some had predicted, it’s enough to ring alarm bells. Vassy Kapelos reports.
The oil shock is finally beginning to bare its teeth — but the bite isn’t as deep as feared. At least for now.
Statistics Canada said Tuesday the economy shrank by 0.1 per cent in January. The pullback was better than what experts were braced for, with the consensus view being that Canada’s economy would contract by 0.2 per cent amid the sharp fall in crude in recent months.
The effects of lower oil prices, which have cratered by more than half since last summer, did help dampen business activity in other areas of the economy in the first month of the year though.
Retail trade, which broadly corresponds to consumption by households and consumers of goods and services, was down, suggesting a hit to confidence among shoppers. Real estate and broker activity dropped 5.7 per cent, while manufacturing and construction similarly posted declines, the federal statistics agency said.
“The breakdown showed that economic activity declined across most industries, including services,” experts at Capital Economics said.
Ironically, higher oil production helped blunt the blow low crude prices created as the development of big oil-sand projects continued and other producers resumed pumping out barrels after maintenance took them offline in December, according to BMO senior economist Benjamin Reitzes. “Recall that construction of long-life oil sands projects that already have significant sunk costs are continuing,” he said.
“There’s no denying that the Canadian economy had a poor start to 2015, but the drop … wasn’t nearly as bad as some feared,” Reitzes added.
Stronger showing
Most experts were prepared for a steeper slide than what their formal forecasts were calling for after comments from Stephen Poloz, the governor of the Bank of Canada, suggested the first few months of 2015 could be “atrocious” for the economy.
“The first quarter of 2015 will look atrocious, because the oil shock is a big deal for us,” he said in an article (paywall) published Monday.
Lower oil prices have led to lower gasoline prices, Poloz said, but the bump in spending money for households doesn’t outweigh the downside of crude’s decline.
MORE: Economists feared job losses of 20,000 in February
The ripple effect will continue in the months ahead, Dina Ignjatovic, an economist at TD Bank, said. “There will be knock-on effects… As such, the impact from the plunge in oil prices is likely to become much more apparent.”
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