Canadian economy’s 2013 growth reduced need for lower rates

OTTAWA — Canada’s economy exited 2013 with a bit of a bang, but our biggest trading partner — and the one we’re relying on the most to boost growth — ended with more of a whimper.

The relatively impressive gain in this country, both in the fourth quarter and for the whole year, overshot expectations, which could silence talk of the need for lower borrowing costs to stimulate growth.

Canada’s gross domestic product — the widest measure of economic performance — grew at an annualized 2.9 per cent between October and December, Statistics Canada said Friday, while also delivering upward revisions for two of the previous three quarters.

Economists expected a weaker 2.5 per cent advance in the fourth quarter, which followed a 2.7 per cent gain between July and September.

Statistics Canada also adjusted second-quarter growth to 2.2 per cent from an earlier estimate of 1.6 per cent, and raised the January-to-March reading to 2.9 per cent from 2.3 per cent.

Last year’s quarterly revisions were due mainly to higher-than-estimated oil and crop output, the federal agency said.

For all of 2013, GDP grew two per cent, compared with average forecasts of about 1.7 per cent. That rate would have matched the overall performance in 2012.

“The firmer results leave a smaller output gap (the difference between potential and actual output) than the Bank of Canada estimated and likely further reduce the — already remote — odds of a rate cut,” said Douglas Porter, chief economist at BMO Capital Markets.

“However, the results also don’t advance the timing of eventual rate hikes, as the growth outlook remains too cloudy with the wobbly start to 2014 in both Canada and the United States.”

On a quarterly basis, business investment overall was down 1.3 per cent annualized between October and December — a pattern that both Ottawa and the Bank of Canada have been anxious to see turn around — while consumer spending rose 3.1 per cent, as heavily indebted households continued to provide the bulk of the country’s growth.

The Bank of Canada has been stuck in neutral for the past four months, with no stated bias for either raising or cutting its trendsetting lending rate, which has been at one per cent since September 2010.

Policy-makers are not likely to adjust that level either way until mid-2015, at the earliest, depending on the economy’s performance this year and next. In other words, don’t anticipate anything new in their regularly scheduled rate statement in Ottawa on Wednesday.