Economy rebounds, but recession seen

Mon Dec 1, 2008 10:35am EST
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By Louise Egan

OTTAWA (Reuters) - Canada's economy grew at a faster clip than expected in the third quarter, just before the global financial crisis intensified, as a rebound in goods-producing industries offset weak exports and consumer spending.

Statistics Canada said on Monday that Canada's gross domestic product expanded 1.3 percent on an annualized basis in the third quarter, beating the market forecast of 1.1 percent growth, after stagnating in the first half of the year.

That compares with a U.S. economic contraction of 0.5 percent in the same period.

"It was a bit better than the market was looking for and pretty close to what we were expecting, so it was a decent third quarter, but I guess it's ancient history given the developments since then," said Craig Wright, chief economist at Royal Bank of Canada.

The upbeat numbers come as Prime Minister Stephen Harper faces a serious political crisis over his management of the economy. The three opposition parties have struck a tentative deal to defeat his minority government on December 8 and form a coalition government. They accuse him of not acting quickly enough to inject stimulus into the economy or to aid the auto sector.

Finance Minister Jim Flaherty is now forecasting a recession in Canada and expects the economy to contract in the fourth quarter and first quarter of next year.

That recession, not the healthy third-quarter growth, is likely to be the focus of the Bank of Canada as it prepares for a December 9 interest rate decision. Markets have priced in a 62 percent chance of a 50 basis-point rate cut next week.

The Canadian dollar shrugged off the now-outdated third-quarter report and remained unchanged at C$1.2465 to the U.S. dollar, or 80.22 U.S. cents.   Continued...

<p>The Ford Flex and Ford Edge share this assembly line at the company's Oakville Plant in this June 3, 2008 file photo. REUTERS/Fred Thornhill</p>