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Manufacturing Bump Extends Canadian Economic Momentum

Manufacturing and oil sands production spur economic improvements for our northern NAFTA partner (for now), where GDP increased 0.4% in November.

Canada’s economic momentum in the second half of last year extended into November, led by a rebound in manufacturing and continued recovery of oil sands production. That offset the first decline in real estate since 2012.

Gross domestic product increased 0.4% in November, slightly higher than economist expectations of 0.3%, Statistics Canada reported Tuesday in Ottawa. Manufacturing production — which has struggled to generate much growth this year — jumped 1.4%, paring most loses from October. The mining and oil and gas sector — which has been on a tear since fires in Alberta earlier this year — also grew 1.4%.

The stronger performance in the second half of 2016 comes as a relief to policy makers who struggled to cope with a near-stagnant economy, as the nation dealt with the impact of an oil price shock and faltering export sector. The November gain is putting the fourth quarter on pace of close to 2% annualized GDP growth — above Bank of Canada forecasts — following a 3.5% annualized pace of growth between July and September.

Bank of Canada Governor Stephen Poloz “should feel confident that the output gap should close within their existing timeline,” CIBC World Markets economist Nick Exarhos said in a note to investors. “That lowers the odds of another ease, although still-meaningful slack in the economy means that a hike is still a distant proposition.”

The Canadian dollar rose as much as 0.9% Tuesday after the GDP report.

November’s economic expansion is the fifth increase in six months, averaging 0.33% over that time. That’s the highest six-month average since 2014.

Goods-producing industries led growth in November, with a 0.9% increase in output. That included a 1.1% increase in construction.

Services-producing industries were up 0.2%, led by a 1.5% increase in finance and insurance. The real estate sector fell 0.2% in November — driven by lower activity for brokers — following moves by the federal government and British Columbia to rein in runaway housing prices.

“The healthy November GDP figures add to the evidence that the Canadian economy continues to shake off some of the setbacks earlier in the year,” Brian DePratto, senior economist at Toronto-Dominion Bank, said in a note to clients.

By Theophilos Argitis, with assistance from Erik Hertzberg.

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