Canada economy looks strong, defies global gloom

Mon Jul 11, 2011 3:31pm EDT
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By Louise Egan and Ka Yan Ng

OTTAWA/TORONTO (Reuters) - Strong housing starts and a marked improvement in the business outlook revealed on Monday that the Canadian economy is humming along at a healthy pace, adding pressure on the Bank of Canada to raise interest rates.

The central bank must weigh evidence of a frothy domestic economy against a bleak global backdrop, including signs of economic stagnation in the United States, the country's dominant trade partner.

The hiring intentions of businesses were at a record high in the second quarter and the outlook on sales, investment and financing was upbeat, according to the central bank's second-quarter business outlook survey.

The survey results suggest more companies are operating at full capacity but do not fear generating inflationary pressures.

"That is consistent with our expectations that growth in the third quarter will bounce back from its lull in the second quarter," said Emanuella Enenajor, an economist at CIBC.

"And the added indicators of capacity pressures suggest the bank has more justification to begin gently removing monetary stimulus in the coming months," she wrote in a note to clients.

Housing starts for June surged well past market expectations, monthly data from Canada Mortgage and Housing Corp showed on Monday, adding to two months of upward revisions and raising second-quarter growth expectations.

Starts rose 1.7 percent in June from May to a seasonally adjusted annualized rate of 197,400 units.   Continued...

<p>A house is seen for sale on the real estate market in Toronto, April 9, 2009. REUTERS/Mark Blinch</p>