In late summer last year, just in time to accompany the first blast of contraindicated economic reality, Statistics Canada announced that Canadian GDP had contracted in Q2 2015. That followed an “unexpected” drop in Canadian GDP in Q1 which was supposed to be like oil prices and only a “transitory” deviation on the road to ultimate monetary policy success. Even with that GDP contraction and “technical recession”, economists flippantly dismissed the event as a quirk or anomaly. Time Magazine even wrote an article in September (of all months) under the headline Why No One’s Worried About the Recession in Canada that contained the assurance of the Bank of Montreal’s Chief Economist that it was the “Best. Recession. Ever.”

For a short time, it seemed as if that might be the case with GDP only slightly negative in H1 and then a rebound in GDP starting in Q3. Statistics Canada showed a 2.4% gain in the July-September quarter that contained all the global misery but for once even economists were worried that there was more trouble lurking behind that positive number.

Avery Shenfeld, Chief Economist, CIBC Capital Markets said while the central bank wouldn’t cut rates on the back of a weak monthly reading, it will have to acknowledge that the fourth-quarter is “running weaker” than its 1.5-percent growth projection. He expects the bank to cut its growth forecast and when it does, Shenfeld says the market will be pricing in reasonable odds of a rate cut.

“We are going to skirt awfuly close to the kind of economic numbers that will bring the Bank of Canada in with a rate cut and I certainly wouldn’t rule it out at this point,” he told BNN.
David Tulk, chief Canada macro strategist at TD Securities agrees.

“The final quarter of the year is looking rather dismal for the Canadian economy,” said Tulk.

“The wider backdrop of falling oil prices and renewed caution among businesses investing in the oil sands suggests the risk of an extended slowdown heading into Q1 remains significant,” he said, adding that the chance of a rate cut in the first quarter “has grown appreciably.”

That seems to be the baseline, as oil investment overall in Canada has become a major drag and one that is lingering even in the “good” quarters. Business capital formation, or Canadian capex, fell in every quarter in 2015 – and at rather alarming rates. In annualized terms, Gross Fixed Capital Formation fell 12.5%, 7.9%, 5.2% and 6.5% in calendar order. That’s a tough backdrop for any economy especially when something that was supposed to be temporary turns into such a structural “hole.”