Canada’s gross domestic product grew faster than economists forecast in August on record extraction of oil and natural gas, putting the economy on track for its fastest quarterly expansion in two years.
Growth is on pace to quicken to about a 2.5 percent annualized pace this quarter according to economists at CIBC World Markets and TD Securities, the fastest since a 6.2 percent gain two years ago. That would be enough to reduce what the Bank of Canada last week called “significant” slack in the economy, which led policy makers to drop language about raising interest rates.
“It’s still going to be a long time before the output gap closes,” said Mark Chandler, head of fixed-income strategy at Royal Bank of Canada’s RBC Capital Markets unit in Toronto. “We still need more momentum” from industries besides energy, he said.
Oil and gas extraction rose 2.8 percent in August to a record C$97.6 billion, Statistics Canada said. Other industries made a more modest contribution to growth during the month, with wholesaling rising 0.4 percent and manufacturing falling 0.3 percent.
The Canadian dollar rose 0.4 percent to C$1.0438 per U.S. dollar at 10:16 a.m. in Toronto. Yesterday, it touched C$1.0497 per U.S. dollar, the weakest in almost two months. One dollar buys 95.80 U.S. cents. Government bonds were little changed, with the benchmark 10-year yielding 2.41 percent.
The Bank of Canada last week predicted third-quarter growth at a 1.8 percent pace, after it slowed to 1.7 percent in the April-to-June period on energy exports and business investment. Governor Stephen Poloz last week kept his key interest rate at 1 percent and said slack in the economy will persist until around the end of 2015.
“While this is certainly a welcome surprise, the Bank of Canada will need to see continued momentum before changing policy tack,” Benjamin Reitzes, a senior economist at BMO Capital Markets in Toronto, wrote in a note to clients.
From a year earlier, GDP grew by 2.0 percent in August, Statistics Canada said, accelerating from July’s revised 1.5 percent.
Other economic indicators suggest a slow expansion, including inflation that’s close to the bottom of the central bank’s 1 percent to 3 percent target range and a reduced pace of job growth this year.
Statistics Canada in a separate report said average weekly earnings of non-farm payroll employees rose 1.3 percent in August from a year earlier while the average number of hours worked fell to 32.9 from 33.1 over that period. The number of workers on payrolls rose 0.3 percent in August from July, or by 51,300.
To contact the reporter on this story: Greg Quinn in Ottawa at email@example.com