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OTTAWA (Reuters) - Canada's manufacturing sector grew at the fastest pace in seven years in January, setting the stage for strong first-quarter economic growth that may prompt the central bank to hike interest rates by mid-year.
Gross domestic product expanded by 0.5 percent in January, Statistics Canada said on Thursday, the same rate as in December and matching the consensus forecast.
The strong performance reaffirmed market expectations that the economic recovery will continue to show strength in the first quarter after impressive 3.3 percent annualized growth in the final quarter of last year.
"As we had suspected, the (Bank of Canada) underestimated the degree of support that the fiscal stimulus announced late last year in the United States would have on Canadian exports and growth," David Tulk, chief Canada macro strategist for TD Securities, said in a note to clients.
That is unlikely to prompt the central bank to raise rates at its next policy announcement date on April 12 though, because inflation remains tame. But markets are on the watch for a rate hike at any announcement date after that.
Some economists now forecast first-quarter growth of about 4 percent, but there is little consensus on the timing of the bank's next rate move.
A slim majority of Canada's primary securities dealers see the bank resuming its tightening cycle in the second half of this year, but five of the 11 dealers surveyed by Reuters on March 18 predicted a hike on May 31.
After the GDP report, market pricing of overnight index swaps reflected expectations that a rate increase would come slightly earlier than previously thought but still in the second half of the year.
"While a stronger outlook for growth will imply a more rapid absorption of spare capacity, the benign inflationary backdrop removes any urgency for the bank to react aggressively," Tulk said.
The Canadian dollar rose slightly after the GDP report to C$0.9694 to the U.S. dollar, or $1.0316, from about C$0.9701 to the U.S. dollar, or $1.0316, before.
TEMPORARY FACTORS
Manufacturing was the biggest driver of growth in January, growing 2.8 percent on a pickup in demand for fabricated metal products and motor vehicles. The last time the sector grew that fast was in September 2003.
Despite the surge in manufacturing, output in the sector remains 4.6 percent below its level in the first quarter of 2008, when it started to shrink sharply. The overall economy, by contrast, recovered to its pre-recession size in mid-2010.
from Manufacturing boosts Canada's economy in January - *Money - MSN CA (http://money.ca.msn.com/investing/news/breaking-news/article.aspx?cp-documentid=28201403 - broken link)
TORONTO (Reuters) - Toronto's main stock index climbed higher on Thursday, buoyed by rising commodity prices and positive news from aircraft maker Bombardier Inc.
Bombardier <BBDb.TO> soared 11.11 percent to C$7.00, and was among the most influential gainers. The company reported an 82 percent jump in fourth-quarter earnings as business jet orders picked up dramatically and it announced a $278 million contract for new trains.
The overall industrials sector led advances with a 1.49 percent rise.
The materials group, home to mining companies, rose 0.91 percent as gold prices firmed. Barrick Gold <ABX.TO> was up 1.26 percent at C$50.71 while Yamana Gold <YRI.TO> gained 1.17 percent to C$12.11.
Gold tracked 1 percent higher as weakness in the U.S. dollar, debt worries in the euro zone and violence across the Middle East and North Africa drove investors toward the safe haven metal. <GOL/>
Oil and gas stocks gained 0.51 percent, with Suncor Energy <SU.TO> climbing 1.52 percent to C$44.03 and Canadian Natural Resources <CNQ.TO> rising 0.94 percent to C$48.44.
Energy firms found support in stronger crude prices, which rose on heightened concerns over supply from the Middle East amid ongoing turmoil in the region. <O/R>
At 10:25 a.m. (1425 GMT), the Toronto Stock Exchange's S&P/TSX composite index <.GSPTSE> was ahead 62.49 points, or 0.44 percent, at 14,146.08. Five of the index's 10 main groups advanced.
"Today's all about commodities recovering after having a selloff most of this week," said Barry Schwartz, vice-president and portfolio manager at Baskin Financial Services.
"Pretty bullish feelings out there, because the economy is showing such strong output. Each time we get these outside shocks, these geopolitical events, it doesn't seem to have any effect on the rally."
Schwartz noted that upbeat economic indicators out of the United States, Canada's biggest trading partner, outweighed the impact of healthy domestic data.
Canada's gross domestic product figures, released early on Thursday, showed manufacturing grew at its fastest rate in eight years and helped boost the overall economy by 0.5 percent.
"That being said of course, as Canada continues to put out these terrific economic numbers, this may make foreign investors look into Canadian companies, maybe taking them over, or getting a foothold into Canada, which would be very good not only for the stock market but also for our economy."
Capping some of the gains was a skid by diversified miner Teck Resources <TCKb.TO>, which fell 1.4 percent to C$52.00.
Concerns over slackening demand in China are driving copper prices lower, even as the metal looks to strengthen over the long term on tightening supply. <MET/L>
($1=$0.97 Canadian)
it is good because we are each others number 1 trading partner if we get other countries to invest in canada then Canada will invest it into the US to fund joint projects together
Yet Canada's taxes are much higher than the US. I'd like to see what the exact definition of manufacturing they use in Canada because I'm willing to bet it's mostly stuff like sawing raw timber into lumber and oil production are counted as "manufacturing" in which case we're not talking about the same thing we call manufacturing in the US. That is a common problem when comparing statistics from different countries.
Just by changing the definitions slightly you can end up with radically different results. Anyone remember back to the early part of Bush 2's administration when they tried to redefine fastfood restaurants as being part of manufacturing?
This is a good question. I think I will try and look some up.
I thought real hard and came up with one brand, Bombardier, we use their trains over here, too.
But then again, maybe brands are not so important. Maybe they have a lot of specialized companies (like the Germans and the Japanese), whose names hardly anyone knows, but whose products are used around the world by OEM's etc.
It doesn't matter if they have domestic brands or not as long as foreign brands manufacture there. That said there are numerous large Canadian based companies.
Also I'd like to point out that Canada didn't experience a financial bubble and the resulting crash the way the US did. They kept the regulations on their banks unchanged and never allowed for the securitization of loans which created the speculative boom and bust in the US. Thus Canada's economy has quietly kept growing this whole time exporting stuff mainly to Asia while the US is going to suffer from a long hang over just like the Japanese did after their financial bubble. If we were smart enough to learn examples from other countries we'd reregulate our financial sector (restoring Glass-Steagall, regulating derivatives, and making the banks which give loans to hold onto the loans instead of passing them on to a greater fool would all be great starts) so that we don't have any more of these highly destructive speculative bubbles.
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