Canadian economic surge edges central bank closer to hiking rates

By Leah Schnurr

OTTAWA (Reuters) – Canada’s economy accelerated in the first quarter on the back of strong consumer spending and a business investment rebound, bolstering the case for the central bank to begin considering raising interest rates.

Gross domestic product grew at an annualized 3.7 percent pace, Statistics Canada said on Wednesday, slightly below expectations for 3.9 percent growth and following upwardly revised annualized growth of 2.7 percent in the fourth quarter.

The economy was also on solid footing as it ended the first quarter, with growth rising by a better-than-expected 0.5 percent in March.

While the first-quarter expansion was shy of the Bank of Canada’s 3.8 percent forecast, it made Canada a growth leader among its industrialized peers at the start of the year.

“At the end of the day, we have to call it strong no matter what,” said Derek Holt, an economist at Scotiabank. “A lot of other countries would like to be in this position.”

Economists said the strong data put the Bank of Canada one step closer to raising rates. The central bank is largely expected to be on hold until 2018.

“If we continue to get growth numbers like this, absent trade policy risks, it’s going to be tougher for the Bank of Canada to avoid rate hikes at some point in the distance,” Holt said.

After initially strengthening following the data, the Canadian dollar was weaker against the greenback as oil prices fell.

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