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Canada抯 Economy Expands at Faster-than-Expected PaceWednesday, March 04, 2015 > 10:32:35
(Wall Street Journal)
Fourth-quarter gross domestic product rise of 2.4% reinforces expectations for central bank rate pause
Canada’s gross domestic product rose at a faster-than-expected clip in the fourth quarter, suggesting the economy held up relatively well even as prices for oil—one of Canada’s main exports—were sliding.
The report, released on the eve of the Bank of Canada’s latest interest-rate decision, reinforced market expectations that the central bank will take a pause Wednesday after unexpectedly cutting interest rates in January.
Gross domestic product grew at a 2.4% annualized rate in the final quarter of 2014, slowing from an upwardly revised 3.2% pace in the prior three months, Statistics Canada said Tuesday. Market expectations were for growth to slow to 2% from the originally estimated 2.8% in the third quarter, according to a report from Royal Bank of Canada .
The fourth-quarter pace was a bit below the 2.5% the central bank had forecast in January and reflected a big inventory boost by businesses as well as spending by households and governments. Less encouragingly, exports fell, as did business investment in machinery and equipment and nonresidential structures.
Growth was faster than in the U.S., where GDP expanded at a 2.2% annualized rate in the fourth quarter.
Avery Shenfeld, chief economist at CIBC World Markets, called the Canadian report “water under the bridge” that didn’t capture the full impact of the oil-price shock. Bank of Canada Governor Stephen Poloz has called lower oil prices a net negative for Canada, as they are expected to lower incomes and worsen Canadian households’ large debt burden.
The Bank of Canada’s rate decision “will be all about what’s expected in 2015, rather than these results that would not have included major cuts in energy sector spending and employment,” Mr. Shenfeld said.
CIBC is one of only two primary dealers of Canadian government securities predicting a rate cut Wednesday. But Mr. Shenfeld doesn’t have a strong view of the call and said “our message to investors is, don’t have a lot of money riding either way on the timing of a cut.”
The central bank cut its key rate by a quarter of a percentage point to 0.75% in January.
The headline GDP figure was driven by a big business investment in inventories, totaling 8.02 billion Canadian dollars ($6.40 billion). Inventories are typically the wild card in quarterly GDP, and a big boost tends to be followed by a drawdown in subsequent quarters.
National Bank of Canada estimated that GDP excluding inventories rose just 0.7% in the fourth quarter, the worst performance since 2012.
Household spending decelerated slightly to a 0.5% quarterly pace and government spending rebounded 0.5%. Exports fell 0.4%, and imports grew 0.4%, meaning net exports didn’t contribute to growth.
The hit from declining oil prices could be seen in the terms of trade, an indicator of prices that a country gets for exports compared with what it pays for imports. Canada’s terms of trade weakened for the third straight quarter as export prices fell and import prices rose, and as a result, real gross domestic incomes dropped 0.1%.
Monthly GDP rebounded 0.3% in December following an unrevised 0.2% decline in November. Markets had expected a milder 0.2% bounce-back.
The economy expanded 2.5% in all of 2014, the fastest pace in three years.