/Posthaste: Canadian GDP likely contracted in Q4 and outlook does not look bright as coronavirus fears could crimp future growth

Posthaste: Canadian GDP likely contracted in Q4 and outlook does not look bright as coronavirus fears could crimp future growth


Good Morning!

Scotiabank thinks Canada’s economy in the fourth quarter fared worse than the Bank of Canada’s projection of 0.3 per cent and may even have slipped into negative territory if the spate of recent economic data coming out of the manufacturing sector was any indicator.

“Q4 GDP growth overall is likely tracking considerably below the BoC’s 0.3 per cent growth rate and perhaps in very mild contraction territory,”Derek Holt, Vice-President & Head of Capital Markets Economics.

The underwhelming data will likely force the Bank’s hand.

“My personal view is that the balance is tilted even more in favour of easing now and away from stability concerns. Highly stimulative fiscal and monetary policy led households toward high levels of borrowing,” Holt noted. “That can’t be reversed. Households are now showing multiple signs of exhaustion in this consumption cycle. To cut them off now after having led them along this path risks magnifying downside risks to the economy versus using tactical monetary policy adjustments to ease the transition more gradually.”

The coronavirus epidemic that originated from China is not helping business and consumer sentiment either. Scotiabank estimates that while it is still early days, a SARS-equivalent pandemic today could have an estimated hit of just over 0.1% on Canadian GDP by mid-2020. This morning, public health officials in Ontario reported a second presumptive case of the coronavirus.

“The effect should not be significant enough to trigger a broader economic malaise, but could this finally push Governor Poloz over the line to proactively stimulate the economy in his next rate call?”

Canadian exports to China such as beef and pork may be hit due to lower demand, while oil is also facing a risk from the demand side.

“(Oil) supply risk has been tested in acute fashion over recent months, but the coronavirus presents the first major severe test to demand in years,” said Michael Tran, analyst at RBC Capital Markets. “Concerns surrounding the virus and the negative impact on demand have taken the oil market hostage and have sent oil prices on a five-day losing streak.”

Here’s what you need to know this morning:

  • The Canadian Union of Public Employees talks about $78 million in annual funding agreed to in its education worker contract last year
  • Alberta Finance Minister Travis Toews to hold telephone town hall to allow communities north of Red Deer to provide views on the budget and province’s finances
  • Premier Jason Kenney will announce the next step for the Alberta Indigenous Opportunities Corporation

Canadian retail sales rose a higher-than-expected 0.9% in November, largely offsetting October’s decline, Statistics Canada said on Friday, as sales picked up at motor vehicle and parts dealers as well as food and beverage stores, according to Reuters.

 

 

— Please send your news, comments and stories to [email protected]. — Yadullah Hussain @Yad_Fpenergy

With files from The Canadian Press, Thomson Reuters and Bloomberg

 

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