Canada's Auto Sector Slump Drags Down Economy
Michael RossCanada's economy unexpectedly stumbled in November, driven by a sharp automotive sector decline amid chip shortages and trade pressures, cooling rate hike expectations.
Canada's automotive sector experienced a sharp decline in November, reeling from a combination of global chip shortages, softening demand, and escalating trade pressures from the United States.
The downturn in the auto industry had a significant ripple effect, pulling down the country's broader economic activity. According to data released Thursday by Statistics Canada, overall manufacturing sales fell 1.2% for the month, while wholesale receipts dropped 1.8%.
Both figures fell short of analyst forecasts. A Bloomberg survey of economists had anticipated a smaller 1.1% decline in factory sales and a slight 0.1% gain in wholesale trade, signaling unexpected weakness in the Canadian economy.
Auto Industry at the Center of the Decline
The motor vehicle industry was the primary driver of the negative results. Manufacturing sales within the auto sector plunged 15.9% in November, marking the second consecutive monthly drop and hitting their lowest level since October 2022.
A similar trend was seen in wholesale figures, where sales of motor vehicles and parts fell by 11.5%. This also represented the weakest performance for the category since October 2022, with declines recorded in both finished vehicles and parts and accessories.
Statistics Canada attributed the slump to several factors. Production at a major auto assembly plant was severely disrupted by the ongoing global semiconductor shortage. This supply-chain issue compounded the effects of weakening demand and broader trade headwinds.
Muted Growth Outlook Halts Rate Hike Talk
This latest data points to an economy struggling under the weight of U.S. President Donald Trump's tariffs, with fading momentum suggesting a slow finish to the year for Canadian growth.
"This continues the mediocre trend for the Canadian economy seen over the past year," noted Benjamin Reitzes, a rates and macro strategist at Bank of Montreal.
Reitzes added that ongoing trade uncertainty is likely to result in uneven growth, a factor that should "silence any chatter of Bank of Canada hikes for now."
The central bank has indicated that its current policy rate of 2.25% remains at "about the right level," provided that inflation and economic output perform as expected.
