Canada GDP tops forecasts in July but June revised down

Fri Sep 28, 2012 10:33am EDT
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By Randall Palmer

OTTAWA (Reuters) - The Canadian economy grew by a higher-than-forecast 0.2 percent in July, but a downward revision for June neutralized the unexpected gain and left growth expectations fairly tepid.

The median forecast in a Reuters survey of analysts was for 0.1 percent real growth in July. But the revision of June's growth figure to 0.1 percent from 0.2 percent in Friday's Statistics Canada report means actual gross domestic product (GDP) in July was almost exactly as forecast.

"The overall pace is still fairly moderate, argues for the Bank of Canada to continue to keep monetary conditions highly stimulative," said Royal Bank of Canada assistant chief economist Paul Ferley.

Growth has to exceed an annualized 2.0 percent for excess capacity to be absorbed, according to calculations by the Bank of Canada, which has predicted third quarter growth would rise to 2.0 percent from 1.8 percent in the second.

Since June, the central bank has said that some modest withdrawal of monetary stimulus may become necessary if economic expansion continues and excess supply is gradually absorbed. But the latter does not appear to be happening now.

"On a year-over-year basis, output was up 1.9 percent, consistent with an economy that is still struggling to crack the 2 percent growth mark," said Robert Kavcic, economist at BMO Capital Markets.

TD Economics senior economist Sonya Gulati said she expects the central bank to reduce its growth forecasts when it puts out its Monetary Policy Report on October 24.

"With the output gap now expected to take longer to close, interest rate hikes are not set to resume until the second half of 2013," she wrote in a note to clients.   Continued...