Canadian economy may have contracted in October

The Canadian economy may have contracted in October. Even if it didn't, the full quarter is probably faced with little to no economic growth. Major data releases right near the festive season are not always so wisely planned. Monthly GDP next Wednesday will inform twothirds of the tracking risk for broad economic growth during the current quarter. The balance of risks facing near-term Canadian economic growth has undeniably once again tilted toward downsides much more than upsides. 

Plunging annualized manufacturing sales volumes and sharp declines in export and import volumes - with the latter reflecting a soft domestic economy and a weak currency that raises import costs - are once again plaguing the outlook after a brief improvement in the third quarter that had more to do with one-off effects. Net trade might not suffer so much because of less of an import leakage effect - but as yet it is difficult to gauge how much of the plunge in import volumes is due to a soft domestic economy or trade substitution toward domestically produced products where feasible. 

If anything saves the economy from contracting in October it would be a) a weak base effect given that the economy shrank by 0.5% in September; and/or b) one-offs that are difficult to assess through the complex array of other underlying factors. Even removing the large 5% drop in the output of the mining and energy sector in September on the assumption that technical factors temporarily held it back would yield a 0.4% rise in October GDP, all else held constant, but would only improve annualized quarterly growth tracking to about a half percentage point in Q4. Weakness is not just about sector-specific distortions; the sources of renewed weakness are broadly based.