May 31, 2018 / 12:43 PM / 3 months ago

UPDATE 2-Canada economic growth cools in Q1 on slower exports, housing

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By Leah Schnurr

OTTAWA, May 31 (Reuters) - Canada’s economy grew at its slowest pace in nearly two years in the first quarter amid cooler exports and a weaker housing sector, though growth was still seen as strong enough for the central bank to raise interest rates again before long.

Gross domestic product grew at an annualized rate of 1.3 percent in the first three months of 2018, Statistics Canada said on Thursday, short of expectations for 1.8 percent and slower than the fourth-quarter’s unrevised 1.7 percent.

It was the slowest growth since the second quarter of 2016, when the economy contracted following wildfires in Alberta.

Still, the first quarter matched the Bank of Canada’s forecast, which economists said could keep the central bank on track to raise interest rates again in July.

The bank held rates steady on Wednesday but dropped cautious language about future rate moves in a signal that higher borrowing costs could come as soon as its next meeting.

Economic growth of 0.3 percent in March also suggested there was momentum heading into the second quarter.

“I would still be comfortable looking for a July hike,” said Doug Porter, chief economist at BMO Capital Markets.

“I think we are going to get indications over the next month or so that the second quarter will look a fair bit better.”

The bank has raised rates three times since July 2017. Bets that it will hike rates again in July were at 64.7 percent after the data. The Canadian dollar weakened against the greenback.

On a non-annualized basis, housing investment declined 1.9 percent, the biggest drop since the first quarter of 2009 as a fall in ownership transfer costs pointed to lower resale activity.

Canada’s housing market has cooled in recent months amid higher borrowing costs and tighter mortgage rules that came into effect in January.

Consumers spent less in the quarter, with household spending growing just 0.3 percent, the slowest pace since the first quarter of 2015 when the economy was hit by tumbling oil prices.

The purchase of vehicles was flat after record growth last year, while Canadians spent less on items like food and household furnishings.

Exports slowed due to lower shipment of non-energy goods, which offset growth in crude and bitumen exports, as well as services.

Business investment picked up, with firms buying more vehicles, machinery and equipment, though an increase in imports also subtracted from overall growth.

Additional reporting by Fergal Smith in Toronto; Editing by Bernadette Baum

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