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Growth data showed that GDP increased 0.4% during the fourth quarter, below expectations.   Nathan Janzen, Senior Economist at RBC Capital Markets,notes that much of the softening can be traced back to what they expect will ultimately be transitory weakness in the oil & gas sector, although household spending growth also continued to slow.

Key Quotes:  

“The 0.4% increase in Q4 Canadian GDP was down from 2.0% in Q3 and the smallest since Q2 2016. A lot of the weakness can still be traced back to softening in the oil patch in the wake of  lower oil prices and announced mandated production cuts in Alberta. Investment spending was down 11% after a similar-sized drop in Q3 “” likely in large part because of a pullback in the oil & gas sector that was earlier flagged by a big drop in drilling activity.”

“Provided the recent recovery in oil prices holds, we expect the softening in activity in the oil & gas sector will ultimately prove temporary, although will still persist into Q1/19.”

“While household spending will remain weaker than in recent years, Q4’s very slow pace is unlikely to be sustained. Labour markets have still looked solid, and one of the (few) bright spots in today’s data was a 3.3% increase in household disposable income in Q4.”

“Soft economic data over the winter is just another reason for the Bank of Canada to hold off on further rate hikes for now.”