Canada’s economy steady as she grows
Analysts are confident solid GDP, retail gains mean end of downturn
Iain Marlow – Toronto Star
Driven largely by cold weather and a hot real estate market, Canada’s economy grew for the second month in row in October, Statistics Canada said on Wednesday, prompting economists to again declare an end to the Great Recession.
As the country flicked on its heaters and feverishly bought property with record low credit costs, the country’s gross domestic product grew by 0.2% in October, a number lower than both analysts’ expectations of 0.3% and September’s rise of 0.4%.
“While the final quarter of the year did not start off as spectacularly as the preceding quarter ended, output still expanded in October for the fourth time in five months, suggesting that the recession is now well in the rear-view mirror,” wrote Krishen Rangasamy, an economist with CIBC World Markets.
Retail and wholesale trade were both up slightly (0.3% and 0.2%, respectively) in October, while mining and oil and gas extraction decreased by 0.4%. Finance and insurance were also down (0.7%), while tourism-related industries – most notably air travel, accommodation, food services and arts and entertainment – were up slightly.
Also on Wednesday, the Bank of Montreal released economic projections for 2010, predicting annual GDP growth of 2.5% and a mid-year end to the Bank of Canada’s low interest rates.
Though slightly deflating, with the country’s manufacturing sector flatlining after massive losses during the downturn, October’s GDP growth gave economists some hope for a strong, year-ending fourth quarter. “Overall, we expect the broad-based growth seen in recent months to continue in the fourth quarter and into 2010,” wrote Dina Cover, an economist with TD Bank.
However, there was some concern about the unexpected and unsustainable nature of the two main sources of growth – utilities and housing sales – even as Ottawa warned this week of an overheating property market and recent real estate data shows the property buying spree continued in November.
“Neither a cold winter nor a hot real estate market is a sustainable source of economic growth,” Erin Weir, an economist with the United Steelworkers, wrote in a note.
On Monday, the Building Industry & Land Development Association released data that showed new home and condo sales in the GTA were up 156% in November from the prior year. Earlier in December, the Toronto Real Estate Board announced November’s existing home sales in Toronto were twice that of November 2008.
Though these comparisons hearken back to the middle of the slump, these organizations stressed the activity went beyond even the heady years prior to the downturn.
“The low-interest rates underpinning Canada’s surprisingly strong housing market can and should continue,” Weir continued.
“However, there is presumably a limit to the amount of pent-up demand for housing. Furthermore, in seeking to prevent a housing bubble, the federal government may tighten its mortgage-insurance requirements.”
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