November 28, 2014 / 1:38 PM / 4 years ago

Cheap oil may temper cheer over strong Canada third quarter GDP

OTTAWA (Reuters) - Canada’s economy grew faster than expected in the third quarter, according to data on Friday, but cheaper oil prices add to the likelihood the Bank of Canada will not consider higher interest rates anytime soon despite the recent run of strong figures.

Stephen Harper Prime Minister of Canada talks at a news conference with Prime Minister of New Zealand John Key after bilateral talks in Auckland, November 14, 2014. REUTERS/Nigel Marple

At 2.8 percent, third quarter growth eclipsed a 2.1 percent market forecast and the Bank of Canada’s 2.3 percent estimate, following 3.6 percent in the second quarter.

Bank of Montreal chief economist Doug Porter said the string of strong data on jobs, auto sales, home sales, and inflation put the economy in “a very good place heading into the energy price storm”.

“Does it get any better than this? Sadly, probably not. Even with this nice run, we suspect the Bank of Canada will be completely unmoved because of one word - oil,” he wrote to clients, noting the pending impact on government revenues, consumer prices and growth from weak oil prices.

Brent crude oil steadied above $73 a barrel on Friday after hitting a fresh four-year low in the wake of OPEC’s decision not to cut output, a move investors said would leave oil markets heavily oversupplied.

The Bank of Canada is forecast to keep interest rates on hold next Wednesday and focus will be on how Governor Stephen Poloz interprets the recent data.

Canada’s growth in real gross domestic product fell short of the 3.9 percent in the United States for the quarter, but U.S. strength spilled over the border, as Canadian goods exports rose by an annualized 9 percent.

Business capital investment rose by 5.9 percent, the highest since the first quarter of 2012. However, most of this was not in machinery and equipment but in residential construction, which rose an annualized 12.5 percent.

Household consumption rose by 2.8 percent.

Lower oil prices will also take pressure off overall inflation which, at 2.4 percent in October, exceeded the central bank’s target of 2.0 percent.

However, Canadian crude prices have not done as poorly as world benchmarks, because the discount for Canadian oil has shrunk as an increasing amount of crude gets shipped by rail.

Editing by Paul Simao and Chizu Nomiyama

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