UPDATE 2-Canada growth jumps in January, dimming chances of rate cut

Thu Mar 31, 2016 9:05am EDT
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(Adds reaction, details, background, jump in Canadian dollar)

By David Ljunggren

OTTAWA, March 31 (Reuters) - Canada's economy grew by a much larger-than-expected 0.6 percent in January, Statistics Canada data indicated on Thursday, reducing the odds that the Bank of Canada will need to cut interest rates further this year.

Market operators polled by Reuters had forecast a 0.3 percent increase from December. January's gain - the fourth in a row - was the largest since the 0.6 percent advance seen in July 2013.

The Bank of Canada, which cut rates twice last year to help counter the effects of a slump in oil prices, is currently predicting first quarter growth of just 1 percent. The January data suggests first-quarter growth could be markedly higher.

"This eliminates any risk of any near-term easing with growth coming in stronger than expected ... the Bank (of Canada) will take encouragement," said Paul Ferley, assistant chief economist at Royal Bank of Canada.

"However, there may be some payback as we move forward. We are getting indications that the energy sector remains weak," he said in a phone interview.

Statscan said manufacturing, retail trade, mining, quarrying and oil and gas extraction were major contributors to growth in January. The output of goods-producing industries rose by 1.2 percent while service-producing industries rose by 0.4 percent.

Output in the manufacturing sector - which was pummeled by a high Canadian dollar and weak markets after the 2008 financial crisis - expanded by 1.9 percent in January.   Continued...