Consumers Lead Canada Growth to Faster-Than-Expected 2.9%Greg Quinn
Canada’s economic growth unexpectedly accelerated in the fourth quarter as consumers kept spending and companies added to inventories.
Gross domestic product grew at a 2.9 percent annualized pace from October through December compared with 2.7 percent in the prior three months, Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg predicted growth would slow to 2.6 percent.
The expansion, along with upward revisions for the first half of 2013, suggests the world’s 11th largest economy is reducing what Bank of Canada Governor Stephen Poloz has called significant slack. Poloz has said it will take about two years to reach full output and economists predict he will keep his benchmark interest rate at 1 percent at a March 5 policy announcement.
“The consumer continues to roll along, which is good I guess in an absolute sense but bad if you’re expecting what the bank is expecting, which is a rotation to exports,” said Mark Chandler, head of fixed-income research at RBC Capital Markets in Toronto.
Canada’s dollar strengthened 0.3 percent to C$1.1084 per U.S. dollar at 10:18 a.m. in Toronto. Faster growth in Canada contrasted with a U.S. fourth-quarter slowdown to a 2.4 percent annualized rate from 4.1 percent.
Canadian bonds fell, with the yield on the 2-year government of Canada benchmark rising to 1.01 percent from 0.99 percent.
Consumer spending increased at a 3.1 percent annualized pace in the fourth quarter led by clothing and energy. Low interest rates are helping, with debt-service payments falling to 7.1 percent of disposable income, the smallest in records dating back to 1990.
Business investment, which Poloz has said must lead growth to have a sustainable expansion, fell 1.9 percent. Stockpiles grew by C$5.61 billion in the fourth quarter, up from a C$4.53 billion addition in the prior three months.
Exports rose 1.7 percent, faster than the 0.9 percent increase for imports.
The growth exceeded the central bank’s January estimate for a 2.5 percent annual rate in the October to December period. Gross domestic product must expand faster than a 1.9 percent rate to exceed the economy’s non-inflationary potential and reduce spare capacity, the bank said.
Inflation has been below the Bank of Canada’s 2 percent target since May 2012. It accelerated to 1.5 percent in January, and Poloz said in a Feb. 22 interview that wasn’t enough to trigger an imminent shift in monetary policy toward tightening.
“The economy is going to be reasonable, although not fast-paced growth,” Murray Mullen, Chief Executive Officer of Mullen Group Ltd., an Alberta-based trucking and oilfield services company, said in a Feb. 25 telephone interview.
The annual rate of growth accelerated to 2 percent in 2013 from 1.7 percent in 2012, Statistics Canada said today, faster than U.S. annual growth of 1.9 percent.
Helping boost last year’s expansion were revisions today that increased Canada’s first-quarter growth figure to 2.9 percent from 2.3 percent and the second-quarter gain to 2.2 percent from 1.6 percent. Those revisions were linked to higher estimates of farm crops and crude oil shipments, Statistics Canada said.
The quarter ended with a 0.5 percent contraction for December that exceeded the 0.3 percent drop economists had forecast. It was the biggest decline since a 0.7 percent fall in March 2009. Manufacturing, retailing and wholesaling led the decline, Statistics Canada said.
Canada experienced harsh weather in December that hampered growth, including an ice storm that left thousands of people without electricity for several days in Toronto, the country’s largest city.
Finance Minister Jim Flaherty’s Feb. 11 budget avoided major new spending measures and focused on his goal of eliminating Canada’s fiscal deficit. Flaherty has said the economy had enough momentum to avoid offering up another round of stimulus spending.
“While today’s GDP report is a bit of a mixed bag, the bigger picture is that the Canadian economy looks to have had better momentum than widely appreciated through much of 2013,” Doug Porter, chief economist at BMO Capital Markets in Toronto, wrote in a client note.
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