Canada growth disappoints, rates to stay low

Tue Nov 30, 2010 12:03pm EST
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By Louise Egan

OTTAWA (Reuters) - Canada's economy disappointed in the third quarter with the weakest growth rate in a year, while the economy shrank outright in September, adding pressure on policy makers to safeguard the patchy recovery.

Gross domestic product growth slowed to a 1.0 percent annual rate in the July-September period as a strong currency hit exports and the housing market cooled, according to Statistics Canada data on Tuesday.

The performance fell short of market predictions of 1.4 percent growth and was down from revised 2.3 percent in the second quarter and 5.6 percent in the first quarter. The agency originally reported a second-quarter figure of 2.0 percent growth.

Although Canadian officials often boast of the country's stellar comeback from last year's recession, it was outshined in the third quarter by the United States which posted 2.5 percent growth, as well as by some other major economies.

"I must say, it contrasts rather sharply with the rest of the world," said Eric Lascelles, chief Canada macro strategist at TD Securities.

"We took a look and based on the historic relationship with some of those international GDP numbers and ours, you would have expected we'd be up in the mid 3s (percent), based on how everybody else did and we just didn't pull it off," he said.

The economy contracted 0.1 percent in September from August -- the worst showing since August 2009 -- as oil and gas extraction and factory production fell.

The Canadian dollar weakened immediately after the data and hit a session low of C$1.0286 to the U.S. dollar, or 97.22 U.S. cents, down from 98.17 U.S. cents at Monday's close. Canadian government bond yields were lower.   Continued...