-Benjamin Reitzes, senior economist at BMO Capital Markets
The Canadian economy unexpectedly shrank in November amid weaker manufacturing, mining, oil and gas extraction, recording the first contraction in almost a year. According to Statistics Canada, Canada's economic output fell 0.2% month-on-month in November, following the 0.3% rise in the preceding month. This translated into a 1.9% annual expansion. Manufacturing appeared to be the main drag on the economy, as it dropped 1.9%, the biggest decline since January 2009. Analysts also are closely following the Canadian energy sector, particularly in light of the lower oil-price shock effects on the Canadian economy.
The Bank of Canada shocked markets by lowering its key interest rate to counter a slump in oil prices that has cut growth and sent the Canadian Dollar down to more than five-year lows against the Greenback. BoC Governor Stephen Poloz warned that if oil remains below $60 per barrel, the bank has more room to adjust its monetary policy further. The BoC has also downwardly revised its domestic growth projections in response to the drop in oil prices. The Canadian economy is now expected to expand at 2.1% in 2015, down from earlier forecasts of 2.4%. And the economy is projected to reach full capacity in the end of 2016, later than was previously thought.
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