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Canadian economy grows faster than forecast in third quarter

H.S. Borji
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The Canadian economy advanced faster than forecast in the third quarter, as exports and consumer spending continued to be the main catalysts of growth, firming expectations about the country’s recovery.

Canada’s real gross domestic product rose 0.7 percent in the third quarter following a 0.9 percent increase in the April to June period, Statistics Canada reported today in Ottawa.

Gross domestic product rose 0.4 percent in September, as expected, following a 0.1 percent drop in August.

In annualized terms, the Canadian economy accelerated 2.8 percent in the third quarter, well above the median estimate of 2.1 percent.

Like in the second quarter, the July to September period witnessed growth throughout the economy. Consumer spending continued to be the backbone of the Canadian recovery in the third quarter, as household final consumption expenditure advanced 0.7 percent. Outlays of durable goods, items meant to last three years or more, rose 3 percent. Expenditure on services eased to 0.5 percent.

Exports maintained a solid growth pace in the third quarter, suggesting Canadian manufacturers were benefitting from the recovery south of the border. Exports of goods and services increased 1.7 percent following a 4.4 percent surge in the second quarter. Imports, which are subtracted from GDP, advanced 1 percent despite a 1.4 percent decline in service imports.

The service economy accelerated 0.8 percent in the third quarter, led by gains in both wholesale and retail trade, finance and professional services. Increases were also recorded in the public sector, transportation and warehousing and food services, official data showed.

Output in the goods-producing industries, which comprise manufacturing, natural resources, utilities and others, edged up 0.1 percent. The gains were led by manufacturing and construction, which offset declines in agriculture, mining and utilities.

Today’s data suggest the world’s eleventh largest economy made solid advances in the third quarter, despite contracting in August. The economy has recovered faster than forecast following a disappointing first quarter that was hampered by severe weather.

A stronger recovery in the United States continued to support the Canadian economy in the third quarter. US GDP grew 3.9 percent annually in the third quarter, revised estimates showed earlier this week. The bigger than forecast gain culminated the strongest six-month period of growth in more than a decade. However, latest manufacturing data suggests US factories were slowing in the fourth quarter, a sign the broader economy may be losing momentum.

Despite Canada’s solid growth figures, the economy continues to face strong headwinds and is expected to operate below capacity for the next two years. Today’s numbers do not reflect the latest plunge in oil prices, which could dampen the recovery efforts into next year. On Thursday OPEC announced it would not cut oil production from 30 million barrels a day and said it would wait for the market to “stabilize itself eventually.”

Canada’s oil sands region contains the third largest oil reserves in the world. Declining global demand, increased production in the United States and advances in new technologies have rattled the energy sector. According to the IEA, the oil market has entered a “new chapter.”

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