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Canada economy puts in worst performance in almost four years as woes bite

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02/28/2020 | 09:40am EDT
Skyscrapers loom over a flagpole carrying the Canadian flag in the financial district in Toronto

Canada's economic growth slowed to an annualized rate of 0.3% in the fourth quarter, the worst performance in almost four years, thanks in part to strikes, bad weather and shutdowns, Statistics Canada said on Friday.

The number matched both the forecast of analysts in a Reuters poll as well as the Bank of Canada's prediction. Statscan revised third quarter annualized growth down to 1.1% from an initial 1.3%.

The Bank of Canada's next interest rate decision is on Wednesday, and market expectations of a cut have jumped as the economy faces challenges from a coronavirus outbreak and rail blockades. The central bank has left rates unchanged since October 2018.

"This entire report is not likely to have much of an impact simply because the world has changed so much in recent weeks," said Doug Porter, chief economist at BMO Capital Markets.

"Officially we would not have them cutting next week, but we do think it's a matter of time now," he said by phone.

Market expectations of a rate cut in March - which jumped to 70% just before the data was released, up from less than 30% in just a few days - edged down to 59%.

In an indication of challenges to come, Statscan said producer prices dropped 0.3% in January, in part because coronavirus was hitting demand for oil, one of Canada's main exports. Raw material prices fell by 2.2% for the same reason.

The fourth quarter growth figure was the worst since a 2.0% drop in the second quarter of 2016, when wildfires hit an oil-producing region.

Statscan cited pipeline shutdowns, bad harvest conditions, an eight-day railway strike in Canada, the spillover effect of a U.S. auto workers' strike and global trade tensions.

Household spending on services jumped by 0.8% over the third quarter while business investment in machinery and equipment fell by 3.6%, the third consecutive decline. Export volumes dropped by 1.3%.

December growth, though, was 0.3%, greater than the 0.1% the markets had been expecting, a fact that TD Securities macro strategist Robert Both described as encouraging.

"It gives a little bit more momentum heading into the first quarter. ... If the bank was looking to the data for a reason to cut this morning, I don't think they found one," he said.

The Canadian dollar barely changed against the U.S. dollar, weakening slightly to C$1.3445, or 74.38 U.S. cents.

(This story refiles to fix typographical error in headline to make it "four" instead of "for")

By David Ljunggren

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