Canada’s economy expands 5% in Q4
March 1, 2010
Financial Post
OTTAWA -- Canada's economic recovery gathered considerable momentum in the final quarter of 2009 in growing at a 5.0% annualized rate, beating market expectations, on strong consumer spending and exports, Statistics Canada said Monday.
The pace of growth topped even the most optimistic forecast in a Reuters poll of analysts and led to slightly higher expectations of a Bank of Canada interest rate hike.
"The economy seems to be firing on all cylinders now outside of business investment," said Sal Guatieri, senior economist at BMO Capital Markets.
"There was a lot of momentum in activity as evident by the strong and broadly based gain in December GDP. So it sets growth up nicely for the first quarter for strength to continue," he said.
The Canadian dollar firmed following the data, rising to a session high of US95.37¢ from US94.98¢ just before the data.
Canadian bond yields edged higher. The yield on the 2-year bond rose to 1.316% from 1.291% just before the data.
The fourth-quarter revival -- the strongest growth since 2000 -- was not enough to offset the impact of a grueling recession that caused gross domestic product to shrink 2.6% overall in 2009 from 2008.
Statscan data showed business investment declined sharply in the fourth quarter, and was only partially offset by the effects of government stimulus spending.
Exports were the biggest contributor to quarterly growth, jumping 3.7%, led by autos, industrial goods and energy products. Consumer spending continued to grow at the same 0.9% pace as in the third quarter, and investment in new housing posted its first quarterly gain since 2007.
Analysts surveyed by Reuters expected 4.1% annualized growth in the fourth quarter. Statscan revised upward its third-quarter growth figure to 0.9% from 0.4% on an annualized basis.
When compared with the third quarter, GDP expanded 1.2%, the biggest increase since the third quarter of 2000. In the month of December, the economy grew 0.6% from November for the fourth straight monthly advance.
The Bank of Canada's latest projection was for 3.3% annualized growth in the fourth quarter. The bank is expected to hold its key interest rate at 0.25% on Tuesday and has pledged to keep the rate at that level until the end of June as long as inflation stays on track.
Investors will watch for any signals the bank is considering wavering from its low-rates pledge earlier due to signs the economy is rebounding more sharply than expected.
"At this point, I think the bank does have scope to maintain its conditional commitment of holding the overnight rate unchanged until the end of the second quarter, although certainly the probability is rising that they may have to move in advance of that," said Paul Ferley, assistant chief economist at RBC.
Yields on overnight index swaps, which trade on expectations for the Bank of Canada's key policy rate, edged higher after the data, showing the market saw tightening as slightly more likely.
© Thomson Reuters 2010 |
