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Strong GDP gains put to rest fears of recession

OTTAWA-A surging energy sector gave a healthy 0.3 per cent boost to the economy in August, suggesting Canada rebounded much more strongly than believed during the summer, following a surprising dip in the spring.

Statistics Canada also upgraded July's gross domestic product a tick to 0.4 per cent on Monday, which places the economy on track to post a strong three per cent gain in the third quarter.

Following a 0.4 per cent contraction in the second quarter, and expectations of softness due to the market turmoil that took hold in early late July, some analysts had speculated it was possible for Canada to have suffered a technical recession of two negative quarters over the summer.

But that is no longer in the realm of possibility, given the bigger than expected numbers in the first two months.

"Even assuming a soft September, the quarter could come in at 2.9 per cent," said Avery Shenfeld, chief economist with CIBC World Markets.

"We still see growth slipping back below two per cent in the fourth quarter, but odds are increasing that the second half should end up well above the Bank of Canada's recent projection barring some new, unforeseen shock," he added.

Scotiabank's Derek Holt said the stronger two months means that September would need to have seen a disastrous 0.5 per cent retrenchment - and there were no signs that happened given the 61,000 pick up in jobs during the month - for third-quarter growth to have come in as weak as the Bank of Canada's call of two per cent.

"Indeed, the recession chatter of a few weeks ago looks pretty ridiculous in light of almost four per cent GDP growth in the latest three months.

The consensus of economists had expected a 0.2 per cent increase in August, and did not foresee July's revision.

However, August's expansion was not as strong in other areas - the agency noted the country's gross domestic product would have remained unchanged but for the 2.8 per cent jump in the energy sector.

Overall, industries tied to Canada's domestic economy did well, while those related to exports did not.

The financial sector, as well as real estate and insurance, retail and construction all posted gains.

On the flipside, manufacturing fell 0.4 per cent, wholesale trade 1.4 per cent, and transport and warehousing was also down slightly on weak foreign demand and strong dollar.

The public sector (public administration, education and health care) overall was unchanged, as was mining.

Economists were uniform in saying the stronger than expected state of the economy is unlikely to materially impact the Bank of Canada's position on interest rates.

Analysts still expect the central bank to keep its target overnight rate at one per cent until at least the middle of next year, and some say until well into 2013.


Date: 2011-10-31
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