* Strongest growth in six quarters
* Follows weak second half of 2012
* Energy and mining sector main source of industrial growth
* Will it press Bank of Canada to keep tightening bias?
By Randall Palmer
OTTAWA, May 31 Rising exports helped rouse the
Canadian economy from a sluggish second half of 2012 to grow at
an annualized rate of 2.5 percent in the first quarter of this
year, the fastest pace in six quarters, Statistics Canada
reported on Friday.
The real growth rate was well above the Bank of Canada's
forecast in April of 1.5 percent, topped the median projection
of 2.3 percent in a Reuters survey and outpaced U.S. growth of
2.4 percent for the quarter. Statscan also revised up
fourth-quarter growth to 0.9 percent from 0.6 percent.
The mediocre performance in the second half of last year had
been partially due to temporary factors, particularly in the oil
and gas sector in the third quarter, and a rebound in mining,
oil and gas extraction became the main source of industrial
growth in the first three months of 2013.
"It does suggest what we saw in the second half last year
was more of a pause than the start of a new trend. With the
monthly numbers continuing to grow through the quarter, it sets
us up for a decent second quarter as well," said Royal Bank of
Canada chief economist Craig Wright.
The Canadian dollar strengthened to C$1.0304 to the
greenback, or 97.05 U.S. cents, from C$1.0333 just before the
data, but then gave up all the gains after U.S. data came out.
Economists were divided on whether this would put pressure
on Stephen Poloz, after he takes over as Bank of Canada governor
from Mark Carney on Monday, to maintain the central bank's line
that the next move in interest rates will be up.
Some economists have wondered whether Poloz's experience at
the helm of Canada's export credit agency might make him
reluctant to do anything to bolster the Canadian dollar, lest
further harm be done to the country's manufacturing sector.
But Bank of Montreal chief economist Doug Porter said the
data might cause the market to price in a slightly greater
chance of the Bank of Canada raising rates earlier in 2014 than
originally thought. However, he said it should not change the
"I think what it will do is quiet some of the talk about the
possibility of the bank considering easing - there are always
some voices out there saying that," he said.
The central bank has said drivers of growth needed to rotate
away from consumption, housing and government spending to
exports and business investment, and Royal Bank of Canada's
Wright said the first quarter showed signs of this hand-off
However, Scotiabank and Capital Economics were among those
who said the first-quarter showing was based on a rebound from
temporary disruptions in the energy patch and this rate of
growth was unlikely to be sustained.
"This is a short-term encouraging burst of activity after
various factors interrupted production throughout the earlier
part of 2012," said Scotiabank's Derek Holt and Dov Zigler in a
note to clients.
Exports of goods and services overwhelmingly made the
biggest contribution to overall growth in the quarter. On a
non-annualized basis, gross domestic product grew by 0.6
percent; the growth in final domestic demand was only 0.1
percent, the weakest showing in four years.