March 30, 2012 / 12:42 PM / 6 years ago

Canada economy slows in January, factories strong

OTTAWA (Reuters) - Economic growth in Canada slowed in January after a sharp jump in December as strength in manufacturing and financial services was offset by a decline in natural gas extraction.

Outerwear ready for shipping is seen packed in boxes on the manufacturing floor of Canada Goose's facility in Toronto January 17, 2012. REUTERS/Fred Thornhill

The very modest growth reported by Statistics Canada on Friday, however, did little to change market expectations that first-quarter growth overall will be around 2 percent or slightly higher, above the Bank of Canada’s latest projection of 1.8 percent.

Gross domestic product inched up just 0.1 percent in January, in line with market expectations, after showing a bigger growth spurt in December than had first been reported. Statscan revised its estimate for December growth to 0.5 percent from the 0.4 percent it had estimated initially.

There had been a chance the January GDP data could have been even softer after earlier figures showed manufacturing shipments and exports faltering in the month.

“Modest January real GDP growth is good news given that previous reports flagged some downside risk,” said Robert Kavcic, economist at BMO Capital Markets.

“Overall, though, our views of the Canadian economy and Bank of Canada policy remain unchanged at this point,” he said.

Quarterly GDP growth, as calculated by Statscan last month, slowed to an annualized 1.8 percent in the fourth quarter from 4.2 percent growth in the third.

A Reuters poll of Canada’s primary securities dealers on March 23 forecast that the central bank would hold interest rates steady at 1.0 percent until the third quarter of 2013 as it continues efforts to stimulate the economy.

The bank’s next rate decision date is April 17 followed by a quarterly update of its economic projections a day later.

Manufacturing, still a sore spot in the economy after taking a big hit during the U.S. recession, increased for the fifth straight month with a 0.7 percent gain but was still below mid-2008 levels.

But labor disputes at two manufacturing plants in January tempered the growth in manufacturing, and durable goods grew at about half the rate of the previous month.

Caterpillar Inc’s (CAT.N) Electro-Motive subsidiary locked out about 450 workers in London, Ontario, on January 1, and in Quebec, Rio Tinto Alcan (RIO.L) locked out more than 700 workers at its Alma aluminum smelter.

Other sectors showing gains in January were finance and insurance, utilities, and wholesale trade, some tourism-related industries and the public sector.

But a decline in natural gas extraction caused the oil and gas extraction industry to shrink by 0.9 percent. Retail trade was unchanged while housing construction declined.

Reporting By Louise Egan; Editing by Chizu Nomiyama; and Peter Galloway

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