Canada Economic Growth Rate Accelerates to 3.3% in 4th Quarter on Exports

Canada’s economy accelerated more than forecast from October to December on the biggest jump in exports since 2004 and faster consumer spending.

Gross domestic product in the world’s 10th-largest economy expanded at a 3.3 percent annual pace in the fourth quarter following a 1.8 percent expansion in the previous three months that was higher than initially estimated, Statistics Canada said today in Ottawa. Economists predicted a 3 percent fourth-quarter gain, according to the median of 23 estimates gathered by Bloomberg News.

The country’s dollar reached the highest in more than three years as the report boosted confidence that Bank of Canada Governor Mark Carney will raise interest rates later this year. Economists predict the key rate will remain 1 percent at tomorrow’s announcement and rise in the second quarter according to economists surveyed by Bloomberg News.

“There is pretty nice momentum going into the first quarter,” said Jacqui Douglas, a senior economics and currency strategist at TD Securities in Toronto. “It looks like global growth is starting to help Canada,” said Douglas, who predicts a July rate increase.

Canada’s dollar appreciated 0.6 percent to 97.18 cents per U.S. dollar at 4:43 p.m. in Toronto, from 97.74 on Feb. 25. It touched 97.10 cents, the strongest level since Nov. 19, 2007. One Canadian dollar purchases $1.0291.

Faster Growth

The June bankers’ acceptance contract yield, which is tied to forecasts about the central bank rate, rose to 1.49 percent today from 1.45 percent on Feb. 25. Government 10-year bonds fell for the first time in seven days.

Carney told reporters at a G-20 meeting in Paris Feb. 19 that fourth-quarter growth could be faster than the 2.3 percent rate the bank had forecast in January.

Statistics Canada also reported today that the country’s fourth-quarter current account deficit narrowed to C$11 billion from a revised record C$17 billion shortfall. Economists predicted a C$9.7 billion deficit the measure of trade in goods, investment and services. The trade balance swung to a C$523 million surplus from a record deficit of C$6.42 billion in the third quarter, as exports rose and imports fell.

On a monthly basis, gross domestic product rose 0.5 percent in December, the fastest pace in nine months, as oil and gas companies boosted production. Economists forecast a 0.3 percent gain based on the median of 21 responses to a Bloomberg survey.

Clock Ticking

“The clock is beginning to tick down on the bank’s ability to hold off interest-rate hikes,” said Avery Shenfeld, chief economist at CIBC World Markets in Toronto. “Another strong quarter and the Bank of Canada has to start moving,” said Shenfeld, who said the January-to-March expansion will match the fourth quarter increase.

Companies such as Suncor Energy Inc. and Canadian National Railway Co. are boosting investment as the recovery takes hold. Rio Tinto Group, the world’s third-largest mining company, approved a $277 million expansion at its Iron Ore Co. of Canada unit on Feb. 8, to increase output as prices rise.

Exports, which equaled 32 percent of Canada’s economy in 2009, rose 4 percent in the fourth quarter -- the biggest percentage gain since the second quarter of 2004. Crude oil shipments rose 30 percent to a record.

Imports of goods and services advanced 0.1 percent, slowing from the third-quarter pace of 1.9 percent, today’s report said.

The gains in trade helped Canada exceed the U.S. fourth- quarter growth rate of 2.8 percent that was reported by the Commerce Department in Washington Feb. 25. The increase also comes as the Canadian currency traded close to parity with the U.S. dollar.

Regain Competitiveness

Carney has said companies must boost investment to regain lost competitiveness and predicts Canada’s recovery will be led by exports and business investment over the next two years as government stimulus spending wanes and consumer spending slows.

Business investment in plant and equipment rose 2.5 percent between October and December, the fourth straight increase. Inventories fell by C$5.34 billion in the fourth quarter, versus a C$18.7 billion increase in the third quarter.

Canadian Prime Minister Stephen Harper’s government is scheduled to present a budget next month, and Finance Minister Jim Flaherty said Feb. 25 he will avoid major new spending measures and focus on keeping taxes low as a two-year stimulus package expires. The Conservatives lack a majority of seats in the House of Commons and need support of at least one opposition party to pass the budget and avoid an early election.

Gaining Momentum

The report shows Canada’s recovery is gaining momentum, Industry Minister Tony Clement told reporters in Ottawa today, adding the economy remains fragile given “international factors.”

Consumer spending rose 1.2 percent in the fourth quarter, the fastest in three years and up from the third-quarter pace of 0.7 percent. Purchases of new and used cars rose 3.8 percent and furniture spending rose 0.9 percent after two prior declines.

Housing investment fell 0.2 between October and December, the second straight decline. Government spending rose 0.8 percent.

Canada’s output grew 3.1 percent last year, versus a decline of 2.5 percent in 2009.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: David Scanlan at dscanlan@bloomberg.net; Christopher Wellisz at cwellisz@bloomberg.net

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