Canada economy grows at fast pace

Bloomberg News

OTTAWA, Canada — Canada’s economic growth rebounded to the fastest in almost three years in the second quarter, with the expansion broadening to exports and business spending that the central bank says is vital to complete a recovery.

Gross domestic product rose at a 3.1 percent annualized pace from April to June, Statistics Canada said Friday in Ottawa, faster than the 2.7 percent economists forecast in a Bloomberg survey. Exports surged 17.8 percent on gains in automobiles, farm and forest products, and household spending climbed 3.8 percent.

Exporters are regaining orders lost during the last recession in 2009, helping to balance a recovery led by debt-fueled consumer spending. Bank of Canada Governor Stephen Poloz has said it will take another two years to use up slack that built up in the world’s 11th-largest economy. Poloz will keep his benchmark interest rate at 1 percent through mid-2015 to support growth, according to a Bloomberg economist survey.

“I see some encouraging trends” said Mark Chandler, head of fixed-income strategy at Royal Bank of Canada’s RBC Capital Markets unit in Toronto. “The good things in the report certainly were the trade contribution, the household is strong,” adding that Poloz will probably remain “cautious” at next week’s interest-rate announcement.

Canada’s dollar and government bond yields rose after the report, with the currency strengthening 0.2 percent to C$1.0843 per U.S. dollar at 9:40 a.m. Friday in Toronto. The two-year government bond yield rose 1 basis point to 1.11 percent.

Business investment in non-residential buildings, machinery and equipment rose 0.9 percent after two previous quarterly declines, Statistics Canada said Friday.

Kinder Morgan said this month it will expand the capacity of a rail terminal being built with Imperial Oil by 110,000 barrels a day because of increased customer demand.

Canada’s growth has picked up along with the U.S. economy, which grew at a 4.2 percent annualized second-quarter pace, the Commerce Department said on Thursday from Washington.

“We can do better, but I think this report is a big step in the right direction,” said Doug Porter, chief economist at BMO Capital Markets in Toronto. “The Bank of Canada will find this report gratifying, especially the strength in exports.”

Friday’s broad-based growth in output supports other recent signs that economic momentum is being sustained beyond the second quarter, including gains in the housing market and the creation of 41,700 net new jobs in July.

The report “sets the stage for better business investment through the next few quarters,” said Stefane Marion, chief economist and strategist at Montreal-based National Bank of Canada Financial. “We’re maybe not out of the woods with respect to the full rotation from consumer spending to investment and exports, but clearly the almost 20 percent gain in exports is good news.”

“The third quarter is shaping up to be relatively good in the U.S., so the export sector should continue to give us some growth,” Marion added.

Friday’s report showed increases in all areas except “non-profit institutions serving households,” Statistics Canada said Friday.

Second-quarter household purchases were led by automobiles, furniture and clothing, Statistics Canada said. Non-farm companies slowed the pace of inventory building, to C$7.02 billion from C$14.5 billion in the first quarter.

The central bank’s July estimate was for second-quarter growth of 2.5 percent, slowing to 2.3 percent in the July-to-September period. Gross domestic product must expand at least 1.9 percent to grow faster than its non-inflationary potential, the bank has said.

“Canada is on the right track,” Finance Minister Joe Oliver said after the report. “And we will stay on track, to a balanced budget in 2015, and tax relief that puts more money back in the pockets of hard working Canadian families,” he said. Oliver’s Conservative Party led by Stephen Harper will seek a fourth mandate in an election next year and has made their economic management a key theme for voters.

The second quarter ended strongly, with gross domestic product rising 0.3 percent in June, led by a 1.8 percent rise in the mining, quarrying, oil and gas extraction category. It was the sixth straight monthly expansion, and was faster than the 0.2 percent gain economists forecast in a Bloomberg survey with 22 responses.

“We anticipate strong demand for our core products for the remainder of 2014 as an improving economy tends to encourage investment in the infrastructure that drives sales growth for both railway ties and utility poles,” Brian McManus, chief executive officer of Montreal-based Stella-Jones, said on an Aug. 8 earnings call.

In a separate report, Statistics Canada said the industrial product price index fell 0.3 percent in July, and the raw materials price index declined 1.4 percent. The median forecast of economists surveyed by Bloomberg was for industrial prices to fall 0.2 percent and for raw materials to drop 1.8 percent.

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