GDP beats Street, rebounds from Q2 fall

Wed Nov 30, 2011 3:19pm EST
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By Randall Palmer

OTTAWA (Reuters) - The Canadian economy grew at an annualized rate of 3.5 percent in the third quarter, recovering more solidly than expected from a 0.5 percent contraction in the second quarter that was linked to the impact of Japan's earthquake and tsunami.

Statistics Canada said on Wednesday the main factor behind the jump in gross domestic product was a rise in net exports.

Analysts said the growth data reduced pressure on the Bank of Canada to boost stimulus but noted that much of the third quarter gain was transitory and that underlying demand was tepid.

A Reuters survey of analysts had forecast a GDP rise of 3.0 percent. By contrast, the U.S. economy grew by 2.0 percent in the third quarter.

"For the Bank of Canada, growth has come in a little stronger than expected in the third quarter," said BMO Capital Markets senior economist Sal Guatieri. "But I'm sure the bank still sees an outlook for modest growth in the near term, and downside risks because of Europe's problems, so basically the bank will maintain a neutral policy stance for some time."

In October, the central bank forecast third quarter growth at 2.0 percent, and a week ago bank Governor Mark Carney said growth in the second half would be slightly better than forecast.

Prime Minister Stephen Harper told the House of Commons the numbers were "very encouraging". "At the same time, we remain very concerned about problems particularly in Europe," he said.

The Canadian dollar strengthened on the data, but most of its gain on Wednesday was spurred by coordinated action by major central banks to increase global liquidity.   Continued...