OTTAWA (Reuters) - Stronger-than-expected trade figures for February and a steady housing market confirm the Canadian economic recovery is picking up speed ahead of expected interest rate hikes by the Bank of Canada.
The trade surplus hit C$1.4 billion ($1.4 billion) in February on increased exports of industrial goods and materials, Statistics Canada said on Tuesday. Analysts had predicted a surplus of C$600 million.
Government ministers say that while they are encouraged by recent data, it is too soon to say the recovery has fully taken hold. High unemployment is a particular concern for Ottawa, which also has an eye on the strong Canadian dollar.
The Bank of Canada has promised to keep rates at record lows at least until the end of June as long as inflation remains under control. Most of Canada’s primary securities dealers expect the central bank to start hiking rates in July or sooner.
“This continued improvement in domestic demand, along with indications of sustained improvement in labor markets, is expected to prompt the Bank of Canada to begin withdrawing current highly stimulative monetary conditions,” said Nathan Janzen at RBC Economics.
“However, the still large amount of economic slack left over from the recent recession is expected to keep a lid on inflation in the near term allowing the pace of tightening to remain moderate.”
Some economists speculate that the strong Canadian dollar will dampen inflation, which could push back rate hikes or ensure moves are done in small increments.
February was the fifth consecutive month Canada posted a trade surplus. Exports grew by 2.8 percent on the back of a 7.2 percent leap in the value of industrial goods and materials.
“These are strong trade figures that over-shot expectations and they should mollify concerns that a strong Canadian dollar could keep the (Bank) sidelined,” said Derek Holt and Karen Cordes Woods of Scotia Capital Economics. The central bank’s next fixed-date rates announcement is on April 20.
The Canadian dollar slipped slightly after the figures were released and by 10:35 a.m. ET it was at C$1.0060 to the U.S. dollar, or 99.40 U.S. cents, compared to C$1.0029 to the U.S. dollar, or 99.71 U.S. cents, just before.
Statscan also said the price of new homes grew by 0.1 percent in February from January and by 0.9 percent from February 2009.
The Toronto and Oshawa region, which accounts for a third of the overall index, recorded a 0.7 percent decline. Statscan said this was partly due to the fact that some builders in the region were keeping prices stable despite an increase in taxes, which had the effect of cutting the value of houses.
Market analysts had on average expected new housing prices to grow by 0.4 percent.
Reporting by David Ljunggren; Editing by Jeffrey Hodgson