Look what I found... Forex is my passion and I'm earning for house

Canada's Third-quarter Growth Rate Beats Expectations

Forex Fundamental Analysis Reports | Written by RBC Financial Group | Nov 30 07 16:00 GMT |

Canada's Third-quarter Growth Rate Beats Expectations Canada's economy grew at a 2.9% annual rate in the third quarter, moderately slower than the upwardly revised 3.8% second-quarter pace and downwardly revised first-quarter 3.5% increase. Market forecasters looked for real GDP growth of 2.1% and RBC a 2.5% increase. The monthly numbers showed that growth slowed a bit in September, with output increasing by 0.1% from 0.2% in August. The strength in the third quarter came from the domestic economy once again with consumer spending rising a solid 3% and fixed investment expanding at a 7.6% annual rate. Consumer spending growth, however, came in at about half the second-quarter's robust 5.9% pace and was the slowest in two years. Residential investment rose 5.2%. Business investment also made a strong contribution to growth in the quarter, rising 8.9% on the back of a robust 15.4% increase in spending on machinery and equipment and 2.9% rise in non-residential structures investment. The strong Canadian dollar did not prevent exports from rising in the quarter; they were up at a 2.3% annual rate. At the same time, the currency boosted import demand, with imports surging at an 18.6% annualized pace. As a result, the trade sector trimmed 4.8 percentage points off the quarterly growth rate. Following two quarters of modest inventory building, there was a jump in inventory accumulation in the third quarter, which accounted for 2.9 percentage points of growth. The economy grew at a slightly firmer pace than the Bank of Canada and the street expected. This was, in part, due to a very large increase in inventory building, although, with a strong domestic economy, some of this was probably desired. The combination of inventory stocking and final domestic demand growth supported a decent showing for the economy in the quarter despite the massive 4.8 percentage point drag coming from the trade sector. Final domestic demand has been the mainstay of Canada's economic growth during the past several years and any signs that the momentum is slowing will likely see the Bank of Canada begin to offset the restraint coming from the trade sector. The domestic economy recorded a 4.6% annualized increase in the third quarter, meaning that the Bank has time to assess the impact of softening momentum in the U.S. economic numbers and persistent financial market volatility on the outlook for Canadian growth, which points to the Bank holding to the sidelines at next week's fixed action date. We expect that somewhat slower domestic demand and continuing restraint from net exports will likely see the Bank cut the policy rate in early 2008.