A surge in Canadian oil exports to the U.S. helped propel the country’s economy in the first quarter to its fastest growth pace since 2011, even as domestic demand expanded at the slowest rate since the 2009 recession.
Gross domestic product grew at a 2.5 percent annualized pace from January to March, the fastest in six quarters, after a revised 0.9 percent gain in the fourth quarter, Statistics Canada said today from Ottawa. The three-month period ended with a 0.2 percent increase in output in March.
Canadian oil producers ramped up shipments to the U.S., taking advantage of new pipeline capacity and rebounding from temporary maintenance shutdowns that curbed output last year, to help the country rebound from the slowest six-month expansion since the recession. The pick-up in growth gives the Bank of Canada more scope to maintain its tightening bias without worrying about its impact on domestic spending, said David Tulk of Toronto-Dominion Bank.
The Bank of Canada “should take some comfort in allowing domestic demand to take a much needed breather,” said Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities in Toronto.
Canada’s central bank, whose benchmark rate of 1 percent is the highest among the Group of Seven, is also the only G-7 country to be signaling the chance of higher interest rates.
Economists surveyed by Bloomberg News projected a 2.3 percent quarterly increase in gross domestic product, according to the median of 24 estimates. Output in March was projected to increase 0.1 percent.
The Canadian dollar pared losses against its U.S. peer after the report before resuming declines. The currency was down 0.5 percent to C$1.0346 per U.S. dollar at 12:26 p.m. in Toronto trading. One Canadian dollar buys 96.66 U.S. cents.
David Watt, chief economist at HSBC Bank Canada in Toronto, pointed to increased production and the reversal of the Seaway pipeline last year by Enterprise Products Partners LP and Enbridge Inc., which moved more crude to the Houston area from Cushing, Oklahoma, for the increase in oil exports at the beginning of this year.
There was a “mini-boom in Canadian oil exports to the U.S.,” Watt said before the release.
Total exports of goods and services rose at a 6.2 percent annualized pace in the first quarter, the fastest pace since the last three months of 2011.
Canada’s share of U.S. crude oil imports rose to 38.7 percent in February, the highest in at least two decades according to U.S. Energy Information Administration data.
Crude oil export volumes jumped 8.2 percent to a record in the first quarter on a non-annualized basis, while natural gas exports were up 9.7 percent over the period, according to Statistics Canada data released before today’s report.
Exports of energy products rose 21.9 percent in the first quarter on an annualized basis, Statistics Canada said today.
Increased output in mining and oil and gas extraction helped lead growth in March, Statistics Canada said, marking the third straight monthly expansion.
Canada will increasingly rely on a rebound in the U.S. to power its economy, the Bank of Canada projects, as household consumption slows and governments rein in spending. The increase marked the second straight quarter that Canada’s economy has outpaced the U.S., where a Commerce Department report yesterday showed growth of 2.4 percent in the first quarter. First-quarter growth was one percentage point above the central bank’s forecast for the three-month period.
“It’s a great start to the year,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto.
While picking up steam in the first quarter, the economy may still struggle to reach the growth rate of its potential for all of 2013, which the Bank of Canada projects at about 2.1 percent.
Canada’s economic growth, estimated at 1.5 percent in 2013 by the International Monetary Fund, will be the slowest among Group of 20 countries outside Europe, according to estimates released by the Washington-based lender in April.
Final domestic demand -- an aggregate of consumption, government spending and business investment -- rose at a 0.6 percent annualized pace in the first quarter, the slowest since the first quarter of 2009, amid a cooling housing market and reduced spending growth by households carrying record debts, the statistics agency said.
“While Canada’s economy packed on a few more pounds than expected,” Bank of Montreal chief economist Doug Porter said in a note to investors, “it’s still stuck in slim-growth mode.”
Finance Minister Jim Flaherty said in a statement today that while he was pleased with the GDP numbers, the global recovery remains weak, citing European unemployment data.
The euro-area jobless rate rose to a record 12.2 percent from 12.1 percent in March, the European Union’s statistics office in Luxembourg said today.
The European announcement “is another reminder of the fragility of the global recovery and the external threats to Canada’s economy,” Flaherty said in the statement.
Household consumption grew at an annualized 0.9 percent in the first quarter, less than half the 2.2 percent pace in the final three months of 2012. Home construction, which helped lift the economy out of recession, fell for a third straight quarter at the beginning of this year, falling at a 4.7 percent rate between January and March.
Capital spending growth by businesses outside of home construction also slowed, growing at a 0.7 percent annualized pace in the first quarter. That’s down from a 5.2 percent rate in the previous quarter.
The economy also got a boost from businesses adding C$2.16 billion ($2.09 billion) to inventories in the first quarter, after drawing down C$10.2 billion from October to December.