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Economy grows 0.3%

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The Canadian economy grew in August - after shrinking in July for the first time in almost a year - as oil and gas extraction, wholesale trade and the country's factories led a broad range of gains.

The country's real gross domestic product increased by 0.3 percent in the month, the most since March, Statistics Canada said Friday.

Still, many measures of the economy stalled in the summer months, from job growth and housing starts to consumer spending and manufacturing, as the U.S. recovery looked increasingly fragile. The Bank of Canada last week paused its interest-rate hiking campaign after three increases and cut its growth projections for Canada and the United States, estimating the economy grew at a 1.6-percent annual rate from July to September - the softest patch since the recession.

The U.S. economy picked up a bit of steam in the third quarter, according to data from the U.S. Commerce Department that was also released Friday, but analysts said the 2-per-cent annual pace doesn't change their view that the Federal Reserve will take action next week to give the world's biggest economy a fresh jolt.

The International Monetary Fund yesterday said the Bank of Canada was right to leave its benchmark interest rate at 1 percent, because of uncertainty in the global recovery amid slow demand, high household debt and a rising tide of protectionism. Risks to Canada's economic outlook are increasing, the IMF said.

In August, Canada's economy benefited from a 1.5-percent increase for oil-and-gas extraction, a 1.1-percent gain for the wholesaling industry - which grew for the first time in four months - and a 0.5-per-cent gain for manufacturing. Other industries such as construction and the finance and insurance sector also saw increases, while forestry and utilities declined.

Output by real estate agents and brokers increased by 5.8 percent as the home resale market regained some momentum after three straight monthly drops, Statscan said. Nonetheless, the sector has slowed from the beginning of the year when record-low borrowing costs were still fuelling a housing boom.

The finance and insurance sector grew 0.6 percent on higher stock trading and gains in personal and business loans, residential mortgages and mutual fund sales.

The economy in August was 4.1-percent larger than in the same month a year earlier.

The U.S. economy grew at a 2-percent annual rate in the third quarter, after a 1.7-percent pace in the previous three months, the Commerce Department said.

Despite the August gain, Canada's economy has gone from being the envy of the Group of Seven to one that won't be running at full tilt until the end of 2012, about a year later than the Bank of Canada had previously believed.

Consumers are retrenching to trim their debt loads and the rebound in the United States, Canada's main export market, is still too slow to reduce unemployment. Bank of Canada Governor Mark Carney has said the Canadian economy has "underlying momentum" and is in a "very different spot" than that of its biggest trading partner, but net exports are becoming more important as a driver of growth now that domestic spending is slowing and the kick from government spending is fading.

"We expect that the Bank will maintain the policy rate at 1.0 percent in the near term and look for the rate hiking process to resume only when there is convincing evidence that the Canadian and U.S. economies are on a sustained and stronger recovery path," said Dawn Desjardins, assistant chief economist at Royal Bank of Canada.

 

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