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Published: Saturday, November 30, 2013, 12:01 a.m.

Consumers power Canada's economy to fastest growth in 2 years

OTTAWA -- Canada's economy grew in the third quarter at the fastest pace in two years amid a gain in consumer spending and rebounds in business investment and inventories, while exports declined.
Gross domestic product rose at a 2.7 percent annualized pace to C$1.70 trillion ($1.60 trillion) from July to September, following a revised 1.6 percent expansion in the prior three months, Statistics Canada said Friday in Ottawa. Economists forecast 2.5 percent growth, according to the median of a Bloomberg survey with 20 responses.
The expansion pared slack in the economy that won't be used up until the end of 2015, according to the Bank of Canada. Governor Stephen Poloz dropped a bias to raise his 1 percent policy interest rate last month, citing weak investment and exports, and will probably keep borrowing costs unchanged at the Dec. 4 announcement, economists surveyed by Bloomberg forecast.
"It sets up the fourth quarter to show above-potential growth again," said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. "It's not suggesting the transitioning from consumers to exports is playing out in a big way."
Consumer spending rose at a 1.7 percent annualized pace in the third quarter, slower than the prior quarter's 3 percent, Statistics Canada said. Inventories rose C$4.8 billion between July and September, including C$4.1 billion of farm products, the highest in records back to 1981. Wheat and canola stockpiles increased after a good growing season, according to the report.
The third-quarter expansion exceeded the central bank's forecast last month for 1.8 percent growth. The bank projects a 2.3 percent increase in the fourth quarter.
Consumer spending in the third quarter was led by items from utilities and financial services to food and beverages, Statistics Canada said Friday.
Pizza Pizza Royalty Corp. Chief Executive Officer Paul Goddard said on a Nov. 6 earnings call that customers have been ordering higher-end menu items even after price increases.
"Our brands experienced an increase in both the average customer check and an increase in customer traffic, so we're pleased with that," he said.
Policymakers are counting on a rotation of demand to businesses and exports from indebted consumers, a process Poloz has said is taking longer than he expected.
Exports fell 2 percent in the third quarter following three previous gains, led by metals and minerals, while imports declined 1.4 percent. Business investment in non-residential buildings, machinery and equipment rose 2.2 percent following a 1.3 percent decline in the second quarter, Statistics Canada said.
The U.S. economy grew at a 2.8 percent pace in the third quarter, the Commerce Department said Nov. 7. Gross domestic product in the 17-nation euro area rose 0.1 percent in the three months through September, cooling from a 0.3 percent expansion in the second quarter, the European Union's statistics office in Luxembourg said Nov. 14.
Other parts of Canada's economy suggest the expansion is more modest. Inflation has been below the Bank of Canada's 2 percent target for 18 months, something the Poloz said last month has assumed "increasing importance" for policy makers. The labor force participation rate in October remained the lowest in more than a decade at 66.4 percent, even as the jobless rate fell to 6.9 percent, the lowest since 2008.
Statistics Canada today also reduced its estimate of the second-quarter expansion to 1.6 percent from 1.7 percent.
On a monthly basis, Canada's gross domestic product rose 0.3 percent in September led by a rebound in manufacturing. The growth exceeded the 0.2 percent gain forecast in a Bloomberg survey of economists.
Story tags » Canada

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