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Canada economy grows more than expected, boosting recovery hopes

By: | at 02:39 PM | International Trade  

The Canadian economy showed unexpected strength in October, growing for the fourth month in a row and boosting market hopes that the country might finally be shaking off the worst of the great recession.

Statistics Canada said the economy had grown by 0.3 percent from September. Analysts had forecast a 0.2 percent advance after September’s 0.3 percent increase.

Although Canada regained most of the jobs it lost since 2008 and 2009, growth has been largely sluggish, prompting the Bank of Canada to make clear it will not raise its key interest rate until it sees signs of a firm recovery.

The economy has posted growth every month this year apart from June.

The output of goods-producing industries grew by 0.4 percent in October on higher manufacturing while service industries output climbed by 0.3 percent as almost all major industrial sectors registered growth.

“Canada’s economy is showing sustained strength for the first time since the early days of the recovery,” said BMO Capital Markets economist Sal Guatieri.

The Bank of Canada has said annualized GDP growth in the fourth quarter will be 2.3 percent, down from 2.7 percent in the third. Guatieri, though, said October’s data suggested fourth quarter growth could be around 2.6 percent.

“Importantly, this would mark the first quarter since early 2011 that GDP has posted successive increases above two percent - that is, above potential,” he said in a note to clients.

Manufacturing output grew by 1.3 percent in October while wholesale trade and retail trade advanced by 1.4 percent and 0.3 percent respectively. Construction, as well as mining, quarrying and oil and gas extraction, were unchanged.

The economy grew by 2.7 percent from October 2012, up from September’s 2.4 percent year-on-year advance.

Peter Buchanan of CIBC World Markets said the 0.3 percent increases in both October and September “suggest a fairly decent start for the economy to the fourth quarter.”

The data helped push the Canadian dollar higher and by 9.40 am (1440 GMT) it was at C$1.0601 to the U.S. dollar, or 94.33 U.S. cents, up from Friday’s close of C$1.0648 to the greenback, or 93.91 U.S. cents.

The Bank of Canada is worried about the risks posed by the persistently low inflation, which in November was just 0.9 percent, well below the central bank’s target of 2 percent.

The Bank has kept its key overnight interest rate unchanged at 1 percent since September 2010, citing in part the inflation rate and the underperforming economy.

A Reuters poll of primary dealers late last month showed that most did not expect the bank to raise rates until the second quarter of 2015. (Reuters)