Canada GDP in April Climbs 0.2%--Update

By Paul Vieira Features Dow Jones Newswires

Canadian economic output expanded in April for a sixth straight monthly gain, with the majority of industrial components registering advances. On a one-year basis, the economy rose at its fastest pace in nearly three years, or before the oil-price shock, setting the stage for a possible Bank of Canada rate increase next month.

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Canada's gross domestic product, or the broadest measure of goods and services produced in an economy, rose 0.2% in April from the previous month, to 1.72 trillion Canadian dollars ($1.32 trillion), Statistics Canada said Friday. This represented a slowdown from the 0.5% increase recorded in March, but the April result was in line with market expectations, according to economists at Royal Bank of Canada.

On a year-over-year basis, GDP rose 3.3% in April, or the biggest such gain since June, 2014.

The services sector, which accounts for roughly two-thirds of output, did the heavy lifting in April, led by wholesale and retail trade. A strong gain in the commodity sector was offset by a decline in manufacturing.

This piece of data emerges a month after Canada recorded the fastest pace of growth in the first quarter among Group of Seven countries, with 3.7% annualized expansion in the January-to-March period.

The GDP results in April emerged just before the Bank of Canada issues its next interest-rate decision July 12, and against a backdrop of a significant sea-change in central bank messaging regarding the economic outlook. It has led investors to price in a roughly 70% chance the central bank raises its benchmark policy rate for the first time since 2010.

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The April GDP report signals "the economy carried considerable momentum into the second quarter," said David Madani, Toronto-based economist at Capital Economics. "Needless to say, this will reinforce market speculation that the Bank of Canada will raise interest rates soon."

Commentary from senior central bank officials, led by Gov. Stephen Poloz, has highlighted how the two rate cuts delivered in 2015 have done their job in stoking growth, and positioning the economy on firmer ground amid the prospect of lower commodity prices.

In an interview, this week that stoked rate-rise expectations for next month, Mr. Poloz said growth in Canada would decelerate following a strong first quarter, but not in a dramatic fashion. Growth would remain above potential, he added, and "that means that we're absorbing excess capacity that was built up in the wake of the crisis and then built up again in the wake of the oil shock two years ago." This would have to be taken into account when officials deliberate in July, he added.

The change in the Bank of Canada's tone is in concert with similar signals from other major developed-world central banks, and suggests the days of unprecedented monetary stimulus are coming to close. This has led to a selloff this week in global government bonds, and advances in the Canadian dollar and U.K. pound.

April's GDP report indicated 14 of the 20 sectors grew on a month-over-month basis, reinforcing the central bank's belief that the pickup in economic activity is broadening on an industrial and regional basis. Growth in the province of Quebec, for example, has been accelerating, and is on track for its best one-year performance in a decade.

The wholesale and retail trade sectors both advanced 0.5% from the previous month, while mining grew 2.7% after declines in the previous two months. The energy sector rose 0.8%. The factory sector, however, fell 0.9%, on weakness in food processing and machinery production.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

June 30, 2017 09:26 ET (13:26 GMT)