September 30, 2014 / 2:53 PM / 3 years ago

WRAPUP 1-Canada's economy stalls in July after 6-month growth streak

OTTAWA, Sept 30 (Reuters) - Economic growth in Canada stalled unexpectedly in July, breaking a six-month streak of gains and ensuring the Bank of Canada will be in no rush to raise interest rates.

Statistics Canada said on Tuesday that real gross domestic product in July was unchanged from June. Market analysts had expected a 0.2 percent advance.

The Bank of Canada, which has kept its key rate at a near-record low 1.0 percent for more than four years, says there is no chance of an increase until it sees signs of a sustained economic recovery.

Among economic categories tracked by Statistics Canada, mining, quarrying and oil and gas extraction fell by 1.5 percent. Utilities declined by 2.3 percent on lower demand for electricity and natural gas amid cooler-than-average temperatures in some regions.

“After a nice run of strength in the prior six months, when growth averaged 0.3 percent per month (3.4 percent annualized), the Canadian economy seriously stubbed its toe in July,” said Doug Porter, chief economist at BMO Capital Markets.

“Today’s disappointing report will not move the bank’s tightening yardsticks one inch down the field,” he said in a note to clients.

Manufacturing output grew by 1.0 percent in July from June on strength across most sectors. The public sector increased by 0.5 percent.

The data briefly pushed the Canadian dollar to a more than six-month low against the greenback. It hit C$1.1205, or 89.25 U.S. cents, down from Monday’s close of C$1.1153, or 89.66 U.S. cents.

A Reuters poll in late August showed most market operators do not expect the Bank of Canada to raise rates until the second half of next year.

Analysts forecast GDP numbers in August will be stronger, saying the dampening effect of cooler temperatures in July is likely to have been a one-off event.

The bank, which forecast in July that annualized third quarter growth would be 2.3 percent, will release its next economic outlook on Oct. 22.

David Madani, an economist at Capital Economics in Toronto, said the July data suggest the economy had less underlying momentum at the start of this quarter than most had expected.

“Accordingly, this reinforces our view that the Bank of Canada will be in no hurry to raise interest rates anytime soon,” he said in a note to clients.

Separately, Statscan said producer prices increased by 0.2 percent in August over July as the weak Canadian dollar boosted prices for motorized and recreational vehicles.

Raw material prices dropped by 2.2 percent in August from July on a 3.3 percent drop in prices for crude energy products.

Additional reporting by Leah Schnurr in Toronto; Editing by Peter Galloway

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