Canada economy grew faster than expected, dims rate cut talk

Fri Feb 28, 2014 10:08am EST
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By David Ljunggren

OTTAWA (Reuters) - Canada's economy grew more than expected in the fourth quarter of 2013, a development that could help kill off any remaining market chatter that the Bank of Canada might cut interest rates to boost growth.

Statistics Canada said on Friday that annualized fourth quarter growth was 2.9 percent, more than the 2.5 percent markets had been anticipating.

Statscan also sharply raised its growth figures for the first two quarters of 2013, indicating the economy had done better than the Bank of Canada realized.

The central bank has kept its key interest rate at a near record low of 1.0 percent since September 2010 and says it will not move until the economy picks up speed and weak inflation rises. Some analysts say the bank could even cut rates.

"The revisions certainly change the tone to how the economy performed in the first half of 2013 ... the economy had better momentum than expected through 2013," said Doug Porter, chief economist at BMO Capital Markets.

"I would say at the margin it slightly further reduces the already remote possibility the Bank of Canada would consider cutting interest rates. I don't think it necessarily advances the case for rate hikes," he told Reuters.

Manufacturing, retail and wholesale trade and construction all posted notable increases in the fourth quarter. Oil and gas extraction edged up while transportation, mining and accommodation and food services all fell.

The Bank of Canada had forecast last month that fourth quarter annualized growth would be 2.5 percent.   Continued...

A woman carries shopping bags during the Christmas shopping season in Toronto, December 7, 2012. REUTERS/Mark Blinch