March 1, 2016 / 1:39 PM / 3 years ago

Canada economy slows in fourth quarter but still tops expectations

OTTAWA (Reuters) - The Canadian economy slowed substantially in the final quarter of last year as exports fell and businesses held back on investments, suggesting the country was still hurting from low oil prices.

Construction cranes being used to build condominium buildings are seen along the skyline in Toronto in this file photo dated December 6, 2012. REUTERS/Mark Blinch

Even so, the 0.8 percent annualized increase in gross domestic product in the fourth quarter topped both economists’ and policymakers’ expectations for zero growth in the quarter.

The third quarter was also revised up slightly to 2.4 percent annualized, Statistics Canada said on Tuesday, while growth in December was modestly better than expected with a pickup of 0.2 percent.

Canada’s economy contracted in the first two quarters of 2015, marking a mild recession as it was hit by the drop in the price of oil, a major export. The renewed downturn in oil prices has raised concerns growth could remain weak this year.

“It gives a slightly better tone to 2016. But from a big picture view, I don’t think it changes the landscape,” said Doug Porter, chief economist at BMO Capital Markets.

With the fourth quarter stronger than the Bank of Canada’s forecast for no growth, the report reinforced expectations the bank is likely on hold for now after cutting interest rates twice last year.

After the release of the economic data, traders nudged up their bets that the bank will keep rates at 0.50 percent when it meets later this month, while the Canadian dollar rallied against the greenback. [CAD/] BOCWATCH

December’s 0.2 percent growth gain sets the stage for the economy to potentially match or exceed the central bank’s 1 percent expectation for the first quarter, “dampening talk of further rate cuts as a result,” said CIBC’s Avery Shenfeld.

On a non-annualized basis, goods exports dropped by 0.5 percent in the fourth quarter, driven by a decline in aircraft and other transportation equipment and as exports of energy products fell 2.8 percent.

Business investment in non-residential buildings and machinery and equipment fell by 3.3 percent as companies spent less on engineering structures in the midst of cheap oil and weak investment in the sector. Lower oil prices also pulled mineral exploration down 8.2 percent.

Consumers continued to help give the economy a boost with household consumption rising 0.2 percent, though that was still a slower pace than the previous quarter.

For the year, the economy grew by 1.2 percent, about half the pace seen in 2014 as weak business investment weighed.

Additional reporting by Fergal Smith in Toronto Editing by W Simon

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