Canada pulls out of recession as growth resumes in third quarter

But business investment still falling
By Leah Schnurr
||Last Updated: 12/02/2015

OTTAWA (Reuters) — Canada pulled out of recession in the third quarter as an acceleration in exports revived growth, supporting expectations the Bank of Canada will be content to keep interest rates where they are for some time.

Gross domestic product increased at an annualized 2.3 per cent rate last quarter, data from Statistics Canada showed on Tuesday. That was a tad shy of expectations for a 2.4 per cent pace and slightly below the Bank of Canada's forecast of 2.5 per cent.

The quarter also ended on a weak note as economic activity in September fell by a worse-than-expected 0.5 per cent, driven by the decline in the oil and gas industry after a temporary production disruption.

But economists expect growth should pick back up in October, which will keep the Bank of Canada on hold when it makes its interest rate decision on Wednesday. The central bank cut rates twice this year to offset the impact of cheaper oil prices on the economy.

"Because the primary driver of the weakness in the September figures was a one-off factor, I don't see the Bank of Canada responding with any policy action," said CIBC Capital Markets economist Nick Exarhos.

The Canadian dollar weakened against the greenback immediately following the report.

Exports, a sector that is key to the central bank's outlook, climbed by an annualized 9.4 per cent in the quarter, helped by an increase in shipments of goods including motor vehicles and consumer items. Exports of crude oil and crude bitumen also rose.

An increase in investment in residential construction and consumer consumption also contributed to economic growth, suggesting cheaper borrowing costs were having an effect.

But business investment fell for the third quarter in a row, suggesting companies had not yet shaken off the shock of lower oil prices that put Canada in recession.

In the first half of the year, Canada's economy had two consecutive quarters of contraction, which is typically considered the basic definition of a recession. It was the country's first recession since the 2008-09 global financial crisis.

Concerns about Canada's weak performance played a part in October's election of the new Liberal government, which pledged to boost growth through infrastructure spending.

Separate data on Tuesday showed the pace of growth in the manufacturing sector contracted in November for the fourth month in a row.

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