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Government of Canada (GoC) bond yields continued their free fall last week, with the most recent plunge being fuelled by a disappointing GDP release from Statistics Canada on Friday.
The latest GDP data estimated that our economy contracted by 0.2% in November. The impact of sharply lower oil prices was evident in the detail, which showed a 1.5% decline in the sector defined as mining, quarrying, and oil and gas extraction. When we remember that a barrel of West Texas Intermediate (WTI) oil was selling for $75 in November and that that same barrel now sells for closer to $45 today, it is easier to understand why the BoC felt that an emergency rate cut was in order (even if our major banks didn’t entirely agree).
In last week’s post I said that “the most immediate impacts [of the oil-price shock] are expected to be negative as oil-patch investment dries up and our import purchasing power weakens. The longer term benefits of a strengthening U.S. economy and a weaker Loonie will take longer to accrue, and are thus less certain.”
That view proved consistent with the latest GDP data, which showed that at least so far, the cheaper Loonie has yet to buoy our manufacturing sector, where activity declined by 1.9% in November. To put that decline in context, it marked the worst monthly performance for the manufacturing sector in more than five years.