Investing.com – Canada's economy contracted in November, but analysts said that wouldn't be enough to deter the Bank of Canada from further tightening its monetary policy in the second half of this year.
In a report, Statistics Canada said gross domestic product (GDP) contracted 0.1% in November from a month earlier, in line with analysts’ expectations. That followed an expansion of 0.3% in October.
Both manufacturing and retail activity contracted in the month, with manufacturing posting its third decline in four months, the agency said. The construction sector softened for a sixth straight month, activity falling to its lowest level since the middle of 2017.
The figures don't include the contribution of cannabis to the economy. Consumption was legalized at the end of October, but figures reflecting cannabis production and sales will only be included in Statistics Canada's data from the December report, which is due March 1.
Despite the slowdown, ING Chief International Economist James Knightley insisted that Canada’s economic fundamentals are still solid enough to allow the country’s central bank to move forward with policy tightening.
“The unemployment rate is at four-decade lows, core inflation has remained around the central bank's 2% target and we expect business activity (outside the energy sector) to improve. This is all good enough, in our view, to keep the Bank of Canada in hiking mode,” he said.
Knightley expects the BoC to follow through with two rate hikes this year in the third and fourth quarter, although he admits that “the risks are clearly skewed to the downside”.