BUSINESS

Happy Holidays: Canada's Economy Takes A Big Dive

12/23/2016 08:47 EST | Updated 12/24/2016 10:42 EST

After four straight months of growth, Canada's economy unexpectedly contracted in October, shrinking a steep 0.3 per cent, according to Statistics Canada data.

The consensus view among economists had been for zero growth in October.

Activity declined in 13 of the 20 economic sectors tracked by StatsCan, including a 1.2-per-cent decline in mining, oil and gas. All of the goods-producing industries shrank in October, including manufacturing (down a sizable 2 per cent in a month) and construction, both of which are now smaller than a year ago. Service industries grew a soft 0.1 per cent.

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A red light on Toronto's Bay Street, the financial centre of Canada. (Photo: The Canadian Press)

Canada's economy has grown a tepid 1.4 per cent over the past year.

Consumers and homebuyers are keeping the economy afloat. Economic growth in October was concentrated in retail and wholesale trade, and real estate, rental and leasing.

The slump in manufacturing is "a direct reflection of the ongoing challenges confronting the export sector, despite the lower Canadian dollar," wrote David Madani of Capital Economics.

Madani, who has been bearish on Canada's economy because of high consumer debt levels, expects the Bank of Canada to cut interest rates again in the first half of next year.

TD Bank senior economist Brian DePratto disagrees, saying the BoC will keep the rate at 0.5 per cent "for the foreseeable future."

DePratto noted that the previous month's growth was revised to a stronger 0.4 per cent.

The economy "continues to move in the right direction, albeit slowly," he wrote in a client note.