Real GDP came in higher than expected for October, providing encouragement for those expecting recovery.

“After last week’s slew of disappointing figures, Canadian GDP was a pleasant Christmas Eve surprise, as real output rose 0.3% in October,” notes BMO Nesbitt Burns. However it still sees an official recession, noting that it still appears that GDP for Q4 is on track for a second straight decline.

The goods producing sector rebounded by 0.2%, as construction continued to advance and manufacturing managed to edge up 0.2%, says BMO. Auto production expanded by 2.8%, and utilities rose 2.2%. Services posted a 0.3% gain, as retail trade grew 2.3%, more than offsetting the prior month’s decline.

TD Bank economists were not as happy with the report, suggesting that although GDP beat consensus, “the lords won’t be leaping when they take a closer look at the picture presented in the report. Most importantly, the gain failed to make up even half of the crushing 0.8% drop in activity suffered during the terrorist-shaken month of September. Barring healthy month-to-month output gains of about 0.3% in both November and December – something we believe is unlikely – real GDP by industry is on track to shrink for the second quarter in a row in the October-December period.”

TD says the strong report may have the Bank of Canada cutting rates just 25 basis points at its next scheduled policy announcement date on January 15, rather than the 50 bps most were calling for before the report.

“Although the fourth quarter of 2001 is likely to mark rock bottom for the Canadian economy during the current downturn cycle, we do not expect the economy to post any meaningful recovery until the second half of next year,” says TD. “The factory sector has not even shown a hint of turning around in recent months. And, with corporate profits still under stress, we believe that the worse is yet to come on the employment front. Souring job markets will put a damper on consumers’ appetite to spend, and on activity in the nation’s housing markets over the near term.”

Canadian GDP started off the fourth quarter better than anticipated, but the gain was not nearly enough to counteract the downside forces on the economy,” BMO concludes, noting Q4 GDP likely declined at nearly a 2% pace.