OTTAWA - The country's economy shrunk by 0.1 per cent in January as wholesale and retail sales retreated amid the steep, mid-winter drop in oil prices.
The decline, however, in the gross domestic product wasn't as deep as economists expected. According to Thomson Reuters, they had predicted the economy to shrink by 0.2 per cent in January.
"But at the same time... it's not a great omen for (first quarter) GDP growth in 2015," said Scott Smith, senior market analyst at Cambridge Global Payments.
"I think we're likely to continue to see some soggy GDP numbers."
January's GDP decline followed a rise of 0.3 per cent in December and a drop of 0.2 per cent in November, Statistics Canada said.
The federal agency primarily attributed the January GDP drop to a 2.6 per cent decrease in wholesale trade and a one per cent fall in retail trade. Wholesale trade had climbed by 1.8 per cent in December, while retail trade saw its second-straight monthly decline after falling 1.4 per cent.
Still, Smith didn't expect the January numbers to coax Bank of Canada governor Stephen Poloz to budge on the key interest rate at his next scheduled rate announcement set for April 15.
"They're not horrible enough that, really, expectations will be ratcheted up that Poloz will cut rates over the next few meetings," he said.
Poloz shocked markets in January by unexpectedly lowering the central bank's overnight interest rate. He called it an insurance against the expected, "unambiguously negative" economic effects of the global oil slump.
The governor reiterated his warning about the oil-price shock this week, telling the Financial Times in an interview that low crude prices will make the economy's first-quarter numbers look "atrocious."
BMO senior economist Benjamin Reitzes said that, ironically, the January data showed a positive offset of 1.4 per cent increase in mining, oil and gas extraction.
"There's no denying that the Canadian economy had a poor start to 2015, but the drop in GDP wasn't nearly as bad as some feared," Reitzes wrote Tuesday in a note to clients.
He predicted the February growth to remain weak and said there's a "decent chance" GDP for the first quarter — the first three months of 2015 — could be negative.
Reitzes said the big question is whether the economy rebounds in the second quarter as the central bank expects.
"That will likely be a key driver for monetary policy," he wrote.
The GDP numbers were released Tuesday as the federal government prepares its spring budget.
The volatility of plunging oil prices forced the government to take the rare step of delaying its release until at least April. The budget is typically presented in February, but Finance Minister Joe Oliver said more time was needed to assess the economic fallout of lower crude prices.
On Tuesday, Prime Minister Stephen Harper was challenged by political opponents in the House of Commons on January's weak GDP number.
"The Canadian economy has grown in the past year and the Bank of Canada and all other experts predict it will grow in the year to come," Harper said during Question Period.
"Obviously, Mr. Speaker, we're all aware that there are negative impacts on the Canadian economy in the short run due to the fall of global oil prices."
The Statistics Canada data also produced a figure for the year-over-year change in GDP — between January 2014 and January 2015. It said the economy grew by 2.4 per cent.