August 24, 2012 / 8:08 PM / 5 years ago

Canada economic growth again seen below forecasts

3 Min Read

OTTAWA (Reuters) - Canada's economy likely grew at a disappointing pace for the third straight time in the second quarter, expanding at a slower rate than the Bank of Canada expects and adding the country's unused productive capacity.

In a Reuters survey of analysts on Friday, the median estimate was for annualized growth of 1.6 percent, not enough to absorb the slack in the economy. Such a pace is likely to keep the central bank from raising interest rates anytime soon.

The Bank of Canada reckons that the economy's potential output grows by 2 percent a year. Anything less than that adds to unused capacity and in theory reduces inflationary pressure.

In July the bank said it expected second-quarter growth of 1.8 percent, a downward revision from its previous forecast of 2.5 percent. Canada will miss the lower forecast if the economists are correct.

Only four of 23 economists in the Reuters survey saw growth of at least 1.8 percent. Growth in the previous two quarters was 1.9 percent, and it undershot the Bank of Canada's forecast by as much as 0.6 points in the first quarter.

For June, the economists saw minimal growth of 0.1 percent, repeating May's result after a 0.3 percent figure in April.

Weak net exports took the greatest toll on second-quarter economic growth, with the trade surplus shifting from an C$80 million ($80.6 million) surplus in March to a C$1.81 billion deficit by June, due to lower oil prices as well as higher imports.

Consumer spending, a primary source of strength, also flagged. Retail sales dropped in April and June.

That said, Bank of Montreal senior economist Michael Gregory expects to see solid business capital spending as well as residential investment. The housing market is showing signs of cooling but lots of construction is in the pipeline.

Bank of Canada Governor Mark Carney has retained his bias towards increasing interest rates, saying this week that the underlying momentum was roughly in line with the growth in potential.

($1 = 0.9924 Canadian dollars)

Reporting by Randall Palmer; Editing by Frank McGurty

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