March 2, 2017 / 1:44 PM / 2 years ago

Canadian economy grows faster than forecast; central bank on hold

OTTAWA (Reuters) - Canada’s economy grew at a faster pace than anticipated in the final quarter of 2016, lifted by consumer spending and a drop in imports, but the strong performance is not expected to prod the central bank to change its cautious stance on interest rates.

Shoppers stroll through the 5.3 million square foot (492,000 square metre) West Edmonton Mall in Edmonton, Alberta February 26, 2015. REUTERS/Dan Riedlhuber

Gross domestic product grew at an annualized 2.6 percent rate in the fourth quarter, Statistics Canada said on Thursday, beating economists’ forecasts for 2 percent growth.

While that marked a slowdown from an upwardly revised 3.8 percent rate of expansion in the third quarter, the economy grew by 0.3 percent in December, boding well for the transition into 2017.

Other aspects of Canada’s economic health were not as strong as the overall growth figure suggested, with an increase in net trade contributing to growth. Although exports rose just 1.3 percent on an annualized basis, imports slumped, giving back temporary third-quarter gains due to a shipment for an East Coast oil project.

The pullback also weighed on business investment. However, consumers continued to show resiliency as household consumption climbed 2.6 percent and economists were generally encouraged by the overall growth.

“The details were messy, but it was a solid quarter for the Canadian economy,” said Nick Exarhos, an economist at CIBC.

While economic growth surpassed the Bank of Canada’s 1.5 percent forecast, economists said it was unlikely to alter the central bank’s cautious stance after it downplayed recent positive data on Wednesday. The bank left interest rates at 0.50 percent. [CAD/]

“The Bank of Canada is worried about a number of uncertain factors, especially what happens with economic policy in the U.S.,” said Jimmy Jean, senior economist at Desjardins.

“I think they will keep, all things considered, a very prudent approach.”

The Canadian dollar strengthened against the greenback but soon reversed course to trade at C$1.3388, or 74.69 U.S. cents. [CAD/]

There were also signs that efforts to stimulate the economy were kicking in as government investment rose. The Liberal Party made reinvigorating the economy a major part of its successful 2015 election campaign and has allocated billions to infrastructure spending.

The economy grew 1.4 percent in 2016, also better than forecast as growth picked up from a weak 2015 that was punctuated by a brief recession.

The strong end to 2016 prompted BMO to raise its 2017 growth forecast to 2.3 percent from 2.0 percent.

“The evidence continues to mount that the growth landscape is shifting for the better,” said Doug Porter, BMO’s chief economist.

Reporting by Leah Schnurr; Additional reporting by Susan Taylor and John Tilak in Toronto; Editing by W Simon and Paul Simao

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