Oil Extraction Drives Canada July GDP Growth for 2nd Month

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Canada’s gross domestic product grew more than forecast in July, the strongest evidence yet of a rebound from the oil shock that shrank the economy in the first half.

Output expanded 0.3 percent to an annualized C$1.66 trillion ($1.24 trillion), Statistics Canada said Wednesday in Ottawa. The median forecast in a Bloomberg survey of 20 economists was for a 0.2 percent increase.

Non-conventional oil extraction jumped 9.1 percent in July, recovering from earlier this year when maintenance shutdowns and wildfires hampered production in Alberta’s bitumen deposits. The oil, gas, mining and quarrying category had recorded seven straight monthly declines through May.

The world’s 11th largest economy is poised to rebound this quarter after contracting in the first half, weakened by a drop in commodity prices, Bank of Canada Governor Stephen Poloz predicts. Growth has been a key topic ahead of an Oct. 19 election with Prime Minister Stephen Harper touting the virtue of his move to balance the budget and saying that more than 80 percent of the country’s industries are growing.

“For the third quarter we are likely to return to growth in quite a substantial way,” said Nick Exarhos, an economist at CIBC World Markets in Toronto. “Our forecast is for 2.7 percent and the numbers today keep us on pace for that.”

The agency revised June’s GDP increase lower to 0.4 percent from 0.5 percent, still enough for Canada to record its strongest two-month expansion in a year.

Durable Goods

Canada’s currency strengthened 0.2 percent to C$1.3393 per U.S. dollar at 11:33 a.m. in Toronto. It has fallen 13 percent this year. Five-year federal government bonds climbed to 0.81 percent from 0.79 percent.

A 0.8 percent gain in finance and insurance, and a 0.6 percent increase in manufacturing -- led by durable goods such transportation equipment -- also supported growth in July.

Manufacturers, battered in the 2009 recession, are beginning to find relief with Canada’s dollar trading at about an 11-year low. The weaker currency makes Canadian goods cheaper in the U.S., which buys three-quarters of its northern neighbor’s exports.

“We are seeing some impact of the low dollar on our job creation activity and manufacturing industry, not as fast as what we used to see,” Quebec Premier Philippe Couillard said in an interview this week in New York. “A few years ago when we had these periods of the Canadian dollar going lower, the effect was immediate and very significant,” he said, adding that “with the Canadian dollar staying low for the foreseeable future, this is very positive for us.”

Lower Rates

Governor Poloz said in a Sept. 21 speech that the fall in the nation’s dollar is easing the shock of lower oil prices, and a diverse economy allows for a shift to other growth opportunities, such as Asian demand for seafood.

Poloz kept the central bank’s trend-setting overnight lending rate at 0.5 percent at the last decision on Sept. 9, after cutting it in January and July. Toronto-Dominion Bank predicts the bank will leave the rate unchanged until the third quarter of 2017.

Much of the damage to the economy earlier this year came as lower crude oil prices prompted producers from Suncor Energy Inc. to Imperial Oil Ltd. to cancel investments.

After Canada’s economy contracted in the first two quarters of this year, meeting the textbook definition of a technical recession, evidence the worst is over has started trickling in for the Group of Seven’s biggest oil exporter. Signs of recovery include the biggest two-month gain in exports since 2011 and creation of 193,300 jobs in the 12 months through August, defying the normal pattern of a recession.

Political Reaction

“We know our approach is working, we have created over 1.3 million net new jobs since the depths of the recession,” Finance Minister Joe Oliver said from his campaign office in Toronto. Other parties “would significantly raise job-killing payroll taxes,” he said.

Opposition parties say the Conservatives focused too much on the energy industry before the crash of crude prices from more than $100 last year. Liberal Leader Justin Trudeau, about tied in recent polls with Harper, has called for deficits to revive growth with infrastructure spending, and Tom Mulcair’s New Democrats say they will work to aid manufacturers they say have fired 400,000 workers under Harper’s tenure.

“Our plan to create growth, to invest in our communities, to create jobs and opportunities for the middle class, isn’t based on the past few months, it’s based on 10 years of low growth by Mr. Harper,” Trudeau said in televised remarks from the Vancouver suburb of Surrey. “We have an economy that is stalled.”

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