Strong economic rebound gives Bank of Canada room to keep rates steady

Wed Nov 30, 2016 11:08am EST
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By Leah Schnurr

OTTAWA (Reuters) - Canada's economy accelerated in the third quarter at its fastest pace in more than two years as it benefited from a rebound in oil exports, cementing expectations that the central bank will keep interest rates steady next week.

Gross domestic product grew at an annualized 3.5 percent, Statistics Canada said on Wednesday, topping economists' expectations of 3.4 percent and picking up from a contraction in the second quarter.

Last quarter brought the strongest pace of expansion since the second quarter of 2014 and exceeded the Bank of Canada's forecast for 3.2 percent growth. The economy has struggled to regain sustained momentum since it fell into a brief recession last year due as oil prices dropped.

Economists were encouraged by September's stronger-than-expected 0.3 percent growth, which suggested the fourth quarter could slow less than anticipated and potentially give the bank room to hold steady.

"It certainly reduces the probability for them to have to introduce a further ease," said Paul Ferley, assistant chief economist at Royal Bank of Canada. "There appears to be sufficient momentum in the economy."

The Canadian dollar was boosted by the data and a jump in oil prices. [CAD/]

Policymakers meet next week. The bank cut rates twice in 2015 to combat the oil shock and acknowledged in October it had considered cutting again.

Third-quarter growth in exports bolstered the economy as energy products recovered from second-quarter weakness that resulted from wildfires in northern Alberta.   Continued...

A container ship port is partially enveloped in morning fog in Burrard Inlet of Vancouver May 4, 2008.    REUTERS/Andy Clark