March 2, 2012 / 1:53 PM / 6 years ago

Q4 growth modest after boisterous Q3

OTTAWA (Reuters) - Canada’s economic growth slowed markedly in the final quarter of 2011, leaving the Bank of Canada with room to keep interest rates at historic lows, but there were surprising signs of underlying strength that point to speedier 2012 growth.

Condominiums are seen under construction in Toronto, July 10, 2011. REUTERS/Mark Blinch

Statistics Canada said on Friday that growth had fallen to an annualized 1.8 percent in the fourth quarter from a sharply upwardly revised 4.2 percent in the third, as positive temporary factors faded and as government stimulus continued to wind down. The figures are seasonally adjusted.

The growth rate was exactly as expected in a Reuters survey of analysts but fell short of the 2.0 percent the Bank of Canada had predicted in its January Monetary Policy Report. U.S. growth was 3.0 percent in the fourth quarter.

In December, the economy grew at 0.4 percent from November, higher than the 0.3 percent forecast and rebounding from November’s 0.1 percent drop. In the quarter, consumer spending and business investment also exceeded expectations.

“A lot of the details are better than expected. First of all there were upward revisions ... The monthly number was a bit stronger than expected, so we head into 2012 with a touch more momentum than expected,” BMO Capital Markets Deputy Chief Economist Doug Porter said.

The Canadian dollar eased on Friday morning after four days of gains against its U.S. counterpart but traders said the muted GDP growth had little to do with it.


Graphic on Canada-U.S. GDP:


Several analysts said they now expect first-quarter economic growth to exceed the central bank’s forecast in January of a mediocre 1.8 percent.

Still, the slightly brighter outlook did not change expectations the Bank of Canada will extend its freeze on interest rates, which it has held at 1 percent since mid-2010.

The bank is unanimously expected to keep its policy interest rate unchanged on March 8, and most forecasters do not see a rate hike until the second quarter of 2013.

“I think the Bank of Canada is on hold for an extraordinary period of time and this GDP (gross domestic product) number is unlikely to push them in either direction away from that,” said Camilla Sutton, chief currency strategist at Scotia Capital.

The bank will update its economic projections in April.


Consumer spending, exports and business investment contributed the most to the fourth-quarter growth.

But the increase in exports, housing investment and business inventories were much weaker than in the third quarter, and government capital spending fell by 5.1 percent.

The third quarter had been especially strong, rebounding after a 0.6 percent drop in the second that was partly due to Japan’s earthquake and tsunami. Statscan revised third-quarter growth to 4.2 percent from 3.5 percent as consumer spending and business investment were stronger than first thought.

For 2011 as a whole, growth came in at 2.5 percent after a 3.2 percent rise in 2010. The most striking contrast between the two years was that government capital investment on things like roads fell 2.9 percent after jumping 17.9 percent in 2010 due to Ottawa’s economic stimulus program.

In December, half of the gain was due to oil and gas output. Manufacturing, wholesale, finance, insurance and construction also rose while retail and utilities fell.

“It is suggesting some of that weakness in the fourth quarter was transitory and we’re already seeing indications by the end of the quarter that weakness was reversing,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

Additional reporting by Claire Sibonney, Jennifer Kwan and Andrea Hopkins; Editing by Chizu Nomiyama and Rob Wilson

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below