Canada fourth-quarter growth beats expectations, central bank seen on hold

Tue Mar 3, 2015 9:16am EST
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By Leah Schnurr

OTTAWA (Reuters) - The Canadian economy grew at a faster pace than expected in the final quarter of last year as consumer spending and a build up in inventories offset a decline in exports, reaffirming expectations the Bank of Canada will hold interest rates steady later this week.

Still, the 2.4 percent annualized rate for gross domestic product (GDP) in the fourth quarter marked a step down from an upwardly revised 3.2 percent in the third quarter, the report from Statistics Canada showed on Tuesday. The fourth quarter surpassed economists' forecasts for 2 percent.

The figures came a day before an interest rate decision from the Bank of Canada. The central bank is expected to follow January's surprise rate cut by holding rates steady at 0.75 percent, though analysts anticipate rates will decline once more by mid-year.

"The fact that it is a good enough number to keep the Bank of Canada on hold is what matters," said Benjamin Reitzes, senior economist at BMO Capital Markets, in Toronto.

Tuesday's report showed growth was not far from the 2.5 percent the bank had forecast for the fourth quarter, and was greater than the 2.2 percent fourth quarter growth seen in the United States. Economists are optimistic that a stronger U.S. recovery will ultimately boost Canada's economy.

Household spending has been a pillar of the Canadian economy coming out of the global financial crisis and it continued to boost the quarter with final consumption expenditure rising 2.0 percent on an annualized basis.

Exports of goods fell 2.5 percent on an annualized basis. Exports of crude oil and bitumen products fell 6.5 percent, while exports of refined petroleum products slumped 36.3 percent against the backdrop of the sharp decline in crude prices.

Business investment fell 0.4 percent, with firms spending less on plants and equipment. Still, businesses added C$7.4 billion ($5.92 billion) to their inventories.   Continued...

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