Canada Q2 growth beats analysts' expectations

Fri Aug 31, 2012 9:58am EDT
 
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By Randall Palmer

OTTAWA (Reuters) - The Canadian economy grew at an annualized 1.8 percent in the second quarter, exceeding market expectations and matching a recent forecast by the central bank, helped by strong investment by companies in new machinery, equipment and buildings.

The Statistics Canada data released on Friday showed the pace of growth beat the 1.6 percent median forecast of analysts in a Reuters survey. It matched revised first-quarter growth figures and also pipped the U.S. growth rate of 1.7 percent.

The data was "a little bit stronger than what the market had looked for. The underlying details still show pretty much the theme we expected with respect to some fading domestic demand. Net exports were a bit of a drag," said David Tulk, chief macro strategist with TD Securities.

"The story that gives the upside surprise was the fact that inventories were a little bit stronger than expected in contributing to growth."

That said, growth was less than the 2 percent rate that the Bank of Canada estimates is the economy's growth potential, meaning that the economy added a bit more slack. But the central bank, which says it may have to raise interest rates at some point, expects growth to accelerate from now through 2013.

BUSINESS INVESTMENT BOOST

Overnight index swaps, which trade based on expectations for the central bank's key policy rate, showed that traders increased bets on a rate hike in 2013 after the data.

Canada's dollar climbed to a session high against its U.S. counterpart. The currency strengthened to C$0.9866 versus the greenback, or $1.0136, from around C$0.9903, or $1.0100, immediately before the release of the data.   Continued...