Canada's economy exceeded market expectations with 0.3% growth in October

OTTAWA (Reuters) – Canada’s economy exceeded market expectations with 0.3% growth in October, led by increases in oil and gas extraction and manufacturing, but gross domestic product likely contracted in November, data showed on Monday.

Canada's economy grew more than expected in October, expanding by 0.3% as oil and gas extraction and manufacturing drove gains, but gross domestic product likely contracted in November, data showed on Monday.

Analysts polled by Reuters had forecast a 0.2% month-over-month rise in October. September's growth rate was upwardly revised to 0.2% from an initial report of 0.1%, Statistics Canada (Statscan) data showed.

The stronger than expected start to the fourth quarter and the upward revision to September's growth rate could assuage some concerns about Canada's economy.

Growth in the third quarter missed the Bank of Canada's (BoC) forecast and the central bank said earlier this month that data suggested the economy may underperform its expectation in the last three months of 2024.

In a preliminary estimate for November, Statscan said GDP likely decreased by 0.1% as declines in sectors including mining, quarrying, and oil and gas extraction and transportation and warehousing were partially offset by increases in accommodation and food services and real estate and rental and leasing.

If November's forecast is confirmed and GDP remains unchanged in December, the economy would fall short of the BoC's 2% growth projection for the fourth quarter.

Growth in October was driven a rebound in the goods-producing industry, which rose 0.9% in October after shrinking for four consecutive months, Statistics Canada (Statscan) data showed. The services-producing industries edged up 0.1%.

Within the goods-producing industry, the mining, quarrying, and oil and gas extraction sector expanded 2.4% after three straight months of declines, Statscan data showed.

Manufacturing rose 0.3% in October driven by an increase in non-durable goods manufacturing.

The central bank, in part to help address slower growth, lowered its key policy rate by 50 basis points to 3.25% earlier in December and indicated further reductions would be more gradual. The bank will release fresh forecasts along with its next rate decision on Jan. 29, before Statscan's next GDP report.

The BoC has cumulatively slashed interest rates by 175 bps since June as inflation returned to target, and money markets see a roughly 50% chance of 25 bps cut in January.