The Canadian economy expanded at its fastest pace in more than half a year, but the bigger picture is still one of slow growth.
The country’s gross domestic product rose 0.3 per cent in November, Statistics Canada said Thursday, its strongest showing in seven months as auto makers and oil firms ramped up activity.
The picture for the fourth quarter is still one of sluggish activity, a soft patch that’s likely to persist in the coming months as the real estate market cools, record household debt loads curb consumption, governments clamp down on coffers and as external demand remains uneven.
Activity is likely to accelerate, but economists expect that won’t happen until later this year.
While activity may have perked up in November, “it’s still far too early to sound the ‘all clear’ on the Canadian economy,” Emanuella Enenajor, economist at CIBC World Markets, said in a note. She expects the slowdown in the housing market and government cuts will weigh on growth this year.
One-per-cent growth may sound weak, but it would still be better than the United States: A report this week showed the U.S. economy unexpectedly contracted in the last three months of 2012, its first decline since the recession ended.
In Canada, the goods side of the economy led the better-than-expected monthly growth. Natural resources registered a bounce in the month, climbing 0.8 per cent on increases in crude petroleum extraction and mining. Among manufacturers, auto output revved up and so did primary metal production.
Construction activity was flat in the month – reflecting a drop in residential construction. Accommodation and food services declined amid fewer foreign tourists, while the arts-and-entertainment sector “continued to reel from the hockey strike,” Ms. Enenajor noted.
Some exporters linked with the fortunes of the U.S. housing market are seeing improving signs. Wood panel maker Norbord Inc. said Thursday that the outlook for this year is “encouraging.”
“Some of our competitors have announced capacity restarts and we are advancing our own plans to bring our Jefferson, Texas, mill online by mid-2013,” the company said in its quarterly release.
The monthly pickup isn’t enough to alter the Bank of Canada’s downgraded forecast of a soft fourth quarter, noted Krishen Rangasamy, senior economist at National Bank Financial. November’s reading “is unlikely to prompt a rethink at the BoC of its recent dovish turn.”
The central bank now expects that fourth-quarter annual growth was 1 per cent at an annual rate, down substantially from its prior forecast of 2.5 per cent. The central bank sees growth for this year of 2 per cent, also lower than its previous projections.
Slow growth and soft inflation means the Bank of Canada won’t raise interest rates through the rest of this year, said David Watt, chief economist at HSBC Canada. Canadian inflation is running at 0.8 per cent, which matches the weakest annual pace in three years.