Canada Growth Beats Expectations; Data Suggest Canada is Benefiting from Pickup in U.S. Demand, Weaker Currency
OTTAWA--Canadian economic growth slowed in the third quarter from the second, but beat market expectations and the central bank's forecast by a wide margin, led by exports and household spending.</br></br>The positive surprise suggested Canada is reaping some benefits from improved U.S. demand and a weaker currency. However, a sharp drop in the price of oil--one of Canada's biggest exports--hovers over the economy as a wild card that could weigh on growth. Economic weakness in Europe and Japan and a slowdown in China could also reinforce the Bank of Canada's view that ultra-low interest rates are required for the foreseeable future.</br></br>Canada's gross domestic product expanded 2.8% on an annualized basis in the third quarter, Statistics Canada said Friday. Market expectations were for 2.1% growth, according to a report from Royal Bank of Canada. The Bank of Canada had forecast a 2.3% advance for the third quarter.</br></br>The report was solid, and the gain didn't rely on a big buildup in inventories. But the oil-price drop marks a new, unexpected headwind for Canada in the coming months, BMO Capital Markets said in a note to clients.</br></br>The "bounty of good news is almost precisely countered by the coming hit to incomes, government revenues, consumer prices and growth from sagging crude prices, which is a net negative for Canada overall. The good news is that the economy was in a surprisingly very good place heading into the energy price storm," said Douglas Porter, BMO's chief economist.