Canada economic growth speeds up in first quarter
8:38 AM, E.T. | May 30, 2011Economy
Canada's economy gathered speed in the first quarter, expanding at its fastest pace in a year as businesses ramped up investment and rebuilt inventories, though economists warned the growth spurt would not last long.
The data, released by Statistics Canada on Monday, nudged the Canadian dollar lower. But it changes little for the Bank of Canada, which is widely expected to hold its benchmark interest rate at 1.0 percent on Tuesday and keep rates steady until the third quarter as growth slows.
"Heading into this, they were looking for growth of a little bit better than 4 percent in Q1, and 2 percent in Q2, and it looks like on both fronts things will be softer," said Doug Porter, deputy chief economist at BMO Capital Markets.
Led by manufacturing, mining and oil and gas extraction, gross domestic product grew at an annualized rate of 3.9 percent in the quarter.
That was the strongest performance since the first quarter of 2010, when the economy grew 5.6 percent, and followed 3.1 percent fourth quarter growth. The economy of the United States, Canada's biggest trading partner, grew an annualized 1.8 percent in the first quarter.
In March, the Canadian economy expanded 0.3 percent, as expected, following a 0.1-percent contraction in February.
In a separate report, Statscan said strong oil exports to the United States helped shrink Canada's first-quarter current account deficit to $8.9 billion, from $10.3 billion.
Derek Holt, economist at Scotia Capital, said he was disappointed by the GDP numbers because of downward revisions to the previous month and quarter.
"The concern is about Q2 and we'll be faced with some very, very soft readings for the Canadian economy in the next two to three weeks," he said.
ROTATION OF DEMAND
The report confirmed expectations that the drivers of growth in the Canadian economy are shifting toward business investment and external trade and away from consumer spending.
Final domestic demand rose 0.6 percent in the first quarter, down from 1.2 percent in the previous quarter.
Business inventories were the biggest contributor to the percentage increase in quarterly GDP, growing by $10.7 billion in the three-month period. Business investment in plant and equipment rose 3.2 percent.
Exports ere a slight drag on growth as import growth outpaced that of exports.
The overall goods trade surplus widened by $1.3 billion from the previous quarter, and the goods surplus with the United States rose to its highest since the third quarter of 2008 as the United States bought record volumes of Canadian oil.