* 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 (Reuters) - 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 outlook dramatically.
“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 happening.
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.