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UPDATE 2-Canada economy better than expected in November, but impact of COVID-19 surge looms

(Updates, adds analyst comments)

OTTAWA, Jan 29 (Reuters) - Canada’s economic growth outpaced expectations in November, posting a seventh consecutive monthly gain, while a surge in COVID-19 and fresh lockdowns likely slowed growth in December, data from Statistics Canada showed on Friday.

The Canadian economy probably posted its biggest GDP drop on record in 2020, likely down 5.1% on the year, Statscan said in a preliminary estimate. Economic activity remains about 3% below pre-pandemic levels.

“Canadian GDP ended 2020 on a much firmer footing than broadly expected, albeit after a brutal year,” said Doug Porter, chief economist at BMO Capital Markets, in a note.

Real GDP rose 0.7% in November, mostly on mining, and oil and gas extraction, beating analyst estimates of a 0.4% gain. December GDP is set to rise 0.3%, Statscan said in a flash estimate, with fourth quarter annualized GDP up 7.8%.

The Canadian dollar was trading 0.5% higher at 1.2762 to the greenback, or 78.36 U.S. cents, with the currency getting an added boost from higher oil prices.

But while growth has continued to beat expectations, post-holiday lockdowns are expected to weigh on economic activity in the new year.

“The economy will only be able to outrun the second wave of the virus for so long,” said Royce Mendes, senior economist at CIBC Capital Markets, in a note.

“With unemployment rising in December and public health officials being forced to tighten restrictions even further in January, the situation likely became more dire in the new year.”

Ontario, Canada’s most populous province, entered a lockdown on Dec. 26 that has now been extended into February in many parts of the region. Quebec is also amid a strict lockdown and curfew, while other provinces also have restrictions.

The goods-producing sector posted a 1.2% increase in November, while the service-producing sector grew by 0.5%. (Reporting by Julie Gordon and David Ljunggren in Ottawa Additional reporting by Fergal Smith in Toronto Editing by Steve Orlofsky and Frances Kerry)

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