Growth rebound may herald Canada's economic spring

Tue Apr 30, 2013 2:48pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's economy delivered a welcome surprise in February, growing faster than expected and prompting economists to upgrade their forecasts for the first quarter, although none expect the central bank to raise interest rates any time soon.

Monthly gross domestic product grew 0.3 percent, Statistics Canada said Tuesday, while also revising upward its growth estimate for January, to 0.3 percent from 0.2 percent.

It cited the potash mining, oil and gas and manufacturing sectors as the main sources of strength.

"Overall, a ray of sunshine in an economy that needs all it can get," said Avery Shenfeld, chief economist at CIBC World Markets.

The Canadian economy has long recovered from the 2008-09 recession but stalled in the second half of last year, posting the two weakest quarters of growth since the crisis.

After many months of disappointment, analysts found themselves in the unusual position of having forecasts that were too downbeat. Most now see economic growth in the first quarter exceeding the 1.5 percent annualized rate predicted by the Bank of Canada (BoC) earlier this month, and possibly even above 2 percent, depending on how March unfolds.

Still, the central bank is going to remain cautious until it sees more evidence the economy is on the mend, said Derek Holt, vice president at Scotiabank.

"This probably means that there is slightly less spare capacity than the BoC estimated in the April Monetary Policy Report, but not terribly so. Further, with the housing correction still progressing and inflation undershooting the BoC's 2 percent target, policy is still going nowhere for a long time," he said.   Continued...

Canada's Finance Minister Jim Flaherty reacts while speaking to journalists in the foyer of the House of Commons on Parliament Hill in Ottawa April 29, 2013. REUTERS/Chris Wattie