Latest Canada data confirm recovery picking up

Tue Apr 13, 2010 11:15am EDT
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By David Ljunggren

OTTAWA (Reuters) - Stronger-than-expected trade figures for February and a steady housing market confirm the Canadian economic recovery is picking up speed ahead of expected interest rate hikes by the Bank of Canada.

The trade surplus hit C$1.4 billion ($1.4 billion) in February on increased exports of industrial goods and materials, Statistics Canada said on Tuesday. Analysts had predicted a surplus of C$600 million.

Government ministers say that while they are encouraged by recent data, it is too soon to say the recovery has fully taken hold. High unemployment is a particular concern for Ottawa, which also has an eye on the strong Canadian dollar.

The Bank of Canada has promised to keep rates at record lows at least until the end of June as long as inflation remains under control. Most of Canada's primary securities dealers expect the central bank to start hiking rates in July or sooner.

"This continued improvement in domestic demand, along with indications of sustained improvement in labor markets, is expected to prompt the Bank of Canada to begin withdrawing current highly stimulative monetary conditions," said Nathan Janzen at RBC Economics.

"However, the still large amount of economic slack left over from the recent recession is expected to keep a lid on inflation in the near term allowing the pace of tightening to remain moderate."

Some economists speculate that the strong Canadian dollar will dampen inflation, which could push back rate hikes or ensure moves are done in small increments.

February was the fifth consecutive month Canada posted a trade surplus. Exports grew by 2.8 percent on the back of a 7.2 percent leap in the value of industrial goods and materials.   Continued...