September 30, 2016 / 12:42 PM / 2 years ago

Canada July economic growth bodes well for third-quarter rebound

OTTAWA (Reuters) - The Canadian economy got off to a stronger-than-expected start in the third quarter, fueled by a rebound in oil and gas extraction that had been disrupted by wildfires in Alberta earlier this year.

The Kit and Ace flagship store is pictured in Vancouver, British Columbia October 17, 2014. REUTERS/Ben Nelms

Friday’s report from Statistics Canada reinforced expectations that the economy recovered in the third quarter and likely provided room for the Bank of Canada to leave interest rates where they are for now, economists said. The bank next meets in October.

Gross domestic product grew 0.5 percent in July, topping analysts’ forecasts for a gain of 0.3 percent.

Activity in the mining and oil and gas extraction sector jumped 3.9 percent. The non-conventional oil extraction sector surged 19 percent as production returned to normal after the wildfire and maintenance shutdowns in April.

“All in all a solid report,” said Andrew Kelvin, senior rates strategist at TD Securities.

“It really hammers home the idea that the Bank of Canada is going to be on hold for the rest of the year.”

Canada’s economy shrank in the second quarter due to weak exports and the impact of May’s wildfires in the oil-producing province of Alberta.

While economists widely expect relatively strong growth in the third-quarter, there is more uncertainty over whether the pace can be sustained.

Earlier this month, the Bank of Canada acknowledged that the ground lost in exports means the growth profile could be weaker than it had anticipated.

The dovish tone prompted some to speculate that the bank could cut rates in the near-term, but Friday’s report should see some of that talk dissipate, economists said.

The Canadian dollar strengthened against the greenback following the report. [CAD/]

On the whole, the bank is expected to hold interest rates where they are at least until 2018 after cutting twice last year to offset the oil price shock. [CA/POLL]

The accommodation and food industry also contributed to economic growth in July as Canada saw an influx of tourists.

Manufacturing rose, helped by a rise in non-durable goods. But construction tumbled for the fourth month in a row, partly due to a decrease in residential building.

Separate data showed Canadian producer prices unexpectedly fell in August as meat and dairy products saw the largest decrease in nearly nine years. Raw materials prices also decreased, weighed by lower prices for animals.

Additional reporting by Fergal Smith in Toronto; Editing by Phil Berlowitz

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