(Adds analyst quotes, CAD reaction, details)
By Julie Gordon
OTTAWA, March 1 (Reuters) - Canada’s economic growth slowed more than expected in the fourth quarter on plunging Canadian crude oil export prices, underpinning market expectations that the Bank of Canada will not hike interest rates next week.
Statistics Canada said on Friday that annualized growth between October and December was 0.4 percent, its slowest pace since the second quarter of 2016 and down from 2.0 percent in the third quarter.
The pace of growth was below analyst forecasts of 1.2 percent. The Bank of Canada, which has hiked rates five times since July 2017, in January cut its forecast for fourth-quarter annualized growth to 1.3 percent from 2.3 percent.
“It was softer than expected obviously... It looks like a lot of the weakness can be attributed to softening of the oil patch,” said Nathan Janzen, senior economist with the Royal Bank of Canada.
“If you’re the Bank of Canada, it’s another reason to hold off on raising interest rates for a while.”
While the central bank has indicated that rates will need to move up over time into the neutral range, in a speech last week Governor Stephen Poloz said the path back was now “highly uncertain.”
Analysts expect the central bank to stay on the sidelines at its next fixed rate announcement on March 6.
“We do have the next move as a hike, but we don’t have it until December this year,” said Doug Porter, chief economist at BMO Capital Markets. “They’re going to have to see some signs that the economy has pulled out of this lull.”
The Canadian dollar slipped to C$1.3201, or 75.75 U.S. cents, on the data.
On a non-annualized basis, fourth quarter export volumes edged down 0.1 percent, compared with a revised rise of 0.8 percent in the third. Crude oil and bitumen export prices plunged 34.3 percent, as transportation bottlenecks out of Canada’s energy heartland sent Canadian crude prices tumbling.
Household spending slowed for the second consecutive quarter, edging up 0.2 percent in the fourth compared with 0.3 percent in the third, Statistics Canada said.
Housing investment fell 3.9 percent as the market continued to soften, with new residential construction down 5.5 percent.
Statistics Canada also noted that cannabis is now fully integrated into the national economic accounts, with household spending on legal and illegal cannabis totaling C$5.9 billion, or 0.5 percent of total household spending.
Annual growth slowed to 1.8 percent in 2018, from 3 percent in 2017, Statistics Canada said. On a monthly basis, the economy shrank 0.1 percent in December from November, the third decline in four months and weaker than analyst expectations. (Additional reporting by Dale Smith in Ottawa, Nichola Saminather, Susan Taylor and John Tilak in Toronto. Editing by Steve Orlofsky and Nick Zieminski)