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Canadian economy grows fastest in 3 years

The Canadian economy began the year with a bang, expanding the most in three years as manufacturing, mining and construction activity quickened.

The country's gross domestic product, the broadest measure of all produced goods and services, rose by a better-than-expected 0.6 per cent in January on widespread gains, Statistics Canada said Wednesday.

It was the fastest growth since December, 2006, the fifth month in a row of increases, and the latest in a string of economic reports to top expectations. The Bank of Canada said earlier this month the economy has been hotter than it had anticipated, putting additional pressure on the central bank to begin hiking interest rates in the coming months.

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"Barring some major unexpected economic shock, it is hard to imagine the Bank of Canada raising rates any later than July, and it must be conceded that June is at least theoretically possible," said Eric Lascelles, chief macro strategist for Canada at TD Securities.


Most economists have boosted their growth forecasts in recent weeks as measures for jobs, wholesale trade, housing and fourth-quarter GDP have all topped forecasts. Some caution that with higher interest rates, fading stimulus spending and still a relatively high jobless rate, the pace of growth might taper off later this year.

Canadian Finance Minister Jim Flaherty called the report "encouraging," though difficulties in the U.S. and some other Western economies mean "we're not out of the woods yet."

Stimulus spending is spurring growth, the Conference Board of Canada said in a separate report Wednesday. It estimates increased infrastructure spending contributed about 0.4 per cent to growth last year, and will add another 0.5 per cent to real GDP growth this year.

January's gains were broad-based. The goods-producing side of the economy grew 1.3 per cent while the services side rose 0.4 per cent, led by wholesale trade, retail trade and the finance and insurance sector.

On the goods side, manufacturing grew 1.9 per cent, extending December's 1.2-per-cent gain as makers of fabricated and primary metal products, chemicals, plastics and rubber products boosted output. In contrast, motor vehicle production fell 2.4 per cent.

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An Investor's Guide to Understanding the Economy by Gary Rabbior:

  • Part 1: How the money in the economy is managed
  • Part 2: How inflation works
  • Part 3: Avoiding the deflationary spiral
  • Part 4: How much money is too much money?
  • Part 5: How markets and currencies work
  • Part 6: How interest rates affect your investments

The construction sector rose 1.7 per cent as residential construction jumped 4 per cent and in engineering and repair work advanced 1 per cent, outweighing a 0.5-per-cent decrease in non-residential building.

Mining and oil and gas extraction increased 0.9 per cent. Oil and gas extraction rebounded 0.5 per cent, on higher production of natural gas. The mining sector excluding oil and gas jumped 2.3 per cent, with increases at potash and gold and silver ore mines as foreign demand grew.

The volume of wholesaling activity increased 2.9 per cent, led by autos and petroleum products.

The finance and insurance sector climbed 0.6 per cent, which Statscan attributed to an increase in trading volume on the stock exchanges.

Retail trade added 0.8 per cent, with big increases in building and outdoor home supplies stores, home furnishings stores as well as food and beverage stores.

Not all sectors posted gains. The output of real estate agents and brokers tumbled 6.7 per cent as sales of existing homes fell in some parts of the country. "Despite this decline, the level of output of this industry remained close to its May, 2007 peak," Statscan said.

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The Canadian dollar strengthened to 98.49 cents (U.S.) from yesterday's close of 98.09 cents.

January's GDP was 1.3 per cent higher than a year earlier - the first positive annual read since September, 2008, noted Dawn Desjardins, assistant chief economist at the Royal Bank of Canada.

December's GDP was revised to 0.5 per cent rather than the 0.6-per-cent originally reported, while November's number was revised up a notch.

Economists polled by Bloomberg had expected a 0.5-per-cent increase in January.

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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