August 30, 2018 / 12:45 PM / a month ago

Canadian economy picks up, still seen unlikely to trigger rate hike

OTTAWA (Reuters) - The Canadian economy expanded in the second quarter at the fastest pace in one year as exports climbed, data from Statistics Canada showed on Thursday, but the improved growth was not expected to trigger an interest hike next week from the Bank of Canada.

FILE PHOTO - Bulk carriers are filled with coal for export at Roberts Bank Superport in Delta, British Columbia, Canada January 15, 2018. Picture taken January 15, 2018. REUTERS/Ben Nelms

Gross domestic product grew at an annualized rate of 2.9 percent in the second quarter of the year, short of economists’ expectations for 3.0 percent but ahead of the Bank of Canada’s estimate of 2.8 percent.

“It’s slightly below expectations but still indicating a doubling of the growth rate relative to this point in the first quarter,” said Paul Ferley, assistant chief economist at Royal Bank of Canada.

“The bank is prepared to tighten further but, as they’ve emphasized, the pace is gradual. I think they’re likely to remain on the sidelines in September but we lean toward a move come October assuming the data continues to show solid underlying strength.”

The central bank, which has raised interest rates four times since July 2017, is due to make a decision on interest rates on Wednesday.

Chances of a rate hike at that meeting slipped to less than 20 percent from 23 percent before the data, the overnight index swaps market indicated.

The Canadian dollar, which has been boosted this week by optimism that a trilateral deal to revamp the North American Free Trade Agreement could be reached, weakened about 0.6 percent against its U.S. counterpart.

Growth in the second quarter was the fastest since the same period last year, while first-quarter growth was revised higher to 1.4 percent from 1.3 percent.

On a non-annualized basis, exports climbed 2.9 percent, helped by increases for energy products and consumer goods. It was the biggest advance for exports since the second quarter of 2014.

Household spending rose 0.6 percent after a more tepid 0.3 percent advance in the first quarter. It was led by a 0.8 percent rise in outlays on services.

Business investment rose 0.4 percent, which was the slowest pace since the fourth quarter of 2016.

June’s GDP growth was flat as a result of reduced output in the oil and gas extraction sector, and lower activity in wholesale and retail trade.

Oil and gas extraction was weighed by a drop in non-conventional oil extraction after a power outage at a production facility. Production at Syncrude Canada’s oil sands facility went offline in June.

Additional reporting by by Matt Scuffham; Editing by Susan Thomas and Frances Kerry

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