Slumping exports slow Canada's 4th quarter growth

Mon Mar 3, 2008 10:18am EST
 
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By Louise Egan

OTTAWA (Reuters) - Canada's economy went into a tailspin at the end of 2007 as exports to the United States waned, strengthening the chance of an aggressive interest rate cut by the Bank of Canada on Tuesday.

Deteriorating exports caused gross domestic product to shrink 0.7 percent in December, against market forecasts of a 0.2 percent decline, a Statistics Canada report showed on Monday.

The economy grew just 0.8 percent on an annualized basis in the fourth quarter, slowing considerably from 3 percent in the third quarter to its most sluggish pace of growth since the second quarter of 2003.

Quarter-on-quarter, growth moderated to 0.2 percent from 0.7 percent in the previous quarter.

"It does seem that the weakness in the U.S. economy has spilled over into Canada, and that this will certainly increase expectations for a 50-basis-point cut tomorrow as opposed to a 25-point cut," said David Powell, currency analyst at IDEAglobal.

The data knocked the Canadian dollar to its lowest level in nearly a week. The currency was at US$1.0127, valuing a U.S. dollar at 98.75 Canadian cents, down from US$1.0159, valuing a U.S. dollar at 98.43 Canadian cents, before the report was released.

The Bank of Canada has already signaled it will cut its overnight interest rate when it meets to decide monetary policy on Tuesday, but economists are divided over the magnitude of the cut.

The central bank hasn't slashed rates by more than a quarter percentage point since late 2001, but Governor Mark Carney is expected to be torn because of the contrast between a slump in Canada's net trade position and surprisingly robust consumer spending.   Continued...

 
<p>Former Bank of Canada Governor David Dodge leaves his office for a news conference in Ottawa January 24, 2008. Canada's economy went into a tailspin at the end of 2007 as exports to the United States waned, strengthening the chance of an aggressive interest rate cut by the Bank of Canada on Tuesday. REUTERS/Chris Wattie</p>