The Canadian economy contracted by 0.1% in January, beating market expectations for a 0.2% drop. This marks the second decline in the last three months. Weakness in services industries (-0.3%) was to blame, although it was partially offset by increased production in the goods-producing sector (+0.3%).
"Despite the stronger-than-expected headline figure, it was still a weak reading and the underlying details of the report suggest further weakness may be in store. As such, the impact from the plunge in oil prices is likely to become much more apparent going forward. We continue to expect growth to be relatively flat in Q1." TD Economics said in a report on Tuesday
Going forward, ongoing strength in the U.S. economy and a weak loonie should help to bolster demand for Canadian-made goods, which certainly bodes well for Canada's export sector. Moreover, as oil prices begin to recover towards the end of this year and into 2016, business and consumer sentiment should follow suit, helping to buoy the overall economy.
"We expect Canada's economic activity to bounce back above 2% (annualized) in the second half of this year, following a subdued pace of growth in H1. This should allow the Bank of Canada to keep the overnight rate as is through 2015 and into 2016. We continue to expect rates to remain on hold until the final quarter of 2016." added TD Economics
