Canada’s Economy Rebounds in July as Construction Resumes

Canada’s gross domestic product grew at its fastest pace in two years in July, reversing the prior month’s drop as the world’s 11th-largest economy tries to recover from an 18-monthlong slowdown.

Output rose 0.6 percent to an annualized C$1.58 trillion ($1.54 trillion), the biggest gain since July 2011, as the economy recovered from a construction strike in Quebec and flooding in Alberta, Statistics Canada said today in Ottawa. GDP had fallen 0.5 percent in June, the biggest decline since the 2009 recession. The median forecast in a Bloomberg economist survey was for 0.5 percent growth in July.

After an initial burst following the recession, Canada’s economy began to slow last year amid weak global demand for its goods and a slump in business investment. Bank of Canada Governor Stephen Poloz has predicted a recovery in exports will help fuel a rebound starting in the second half of this year, which will eliminate slack in the nation’s economy by 2015 and lead to higher policy interest rates.

“We are not as bullish as the Bank of Canada in terms of the contribution of exports to GDP growth,” said Krishen Rangasamy, senior economist at National Bank Financial in Montreal, who forecasts the central bank will wait until 2015 to increase borrowing costs.

“Today’s data are better than expected, but in our view it doesn’t change anything in terms of monetary policy,” Rangasamy said in a telephone interview.

The Canadian dollar rose 0.1 percent to C$1.0295 per U.S. dollar at 12:53 p.m. in Toronto. Investors are pricing in less than a 50 percent chance of a rate increase by the end of next year, according to trading in overnight swaps.

Accelerating Growth

The central bank forecast in July that growth will accelerate to a 3.8 percent annualized pace in the third quarter after slowing to 1.7 percent in the second quarter. Economists surveyed by Bloomberg this month forecast a 2.1 percent rate from July to September. Canada has averaged annualized quarterly growth rates of 1.3 percent since the start of 2012, down from 3 percent in 2010 and 2011.

“The bigger story here is that underlying growth is still just quietly grinding along at a modest pace,” Doug Porter, chief economist at Bank of Montreal’s capital markets unit in Toronto, said in a note to investors.

The central bank has kept its key lending rate at 1 percent since September 2010, the longest pause since the 1950s, to encourage investment and spending. The nation’s output in July was 1.4 percent higher from a year ago, up from a revised 1.1 percent annual increase in June.

‘Grinding Along’

Construction led gains in July, with the industry posting a 1.9 percent increase in output during the month as it recovered from a June strike in Quebec. Non-residential building construction rose 9.2 percent in July.

Manufacturing also rebounded with a 1.1 percent increase in July, after falling 1 percent in June. Factory production has been the biggest drag on GDP over the past 12 months, declining 2.6 percent in July from the same month a year ago.

Stronger potash and coal mining, along with increased drilling and rigging services, helped drive a 1.4 percent gain in the mining and oil and gas extraction component, Statistics Canada said today.

Goods-producing industries boosted production by 1.2 percent in July, after a 0.9 percent decline in June. Services producers increased output by 0.3 percent, led by a 1.6 percent gain by wholesalers, the statistics agency said.

In a separate report, Statistics Canada said today its index of raw-materials prices paid by manufacturers rose 0.9 percent in August from the month before.

The industrial product price index, which measures what manufacturers receive for their goods, increased 0.2 percent.

To contact the reporter of this story: Theophilos Argitis at targitis@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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