Hockey helps Canada's economy grow again in January

By Louise Egan

OTTAWA (Reuters) - Canada's economy bounced back from a year-end slump in January thanks to factories, mines and the return of professional ice hockey, but growth still looks too weak to match the central bank's upbeat outlook and interest rates are unlikely to budge until 2014.

Gross domestic product expanded by 0.2 percent in the month, Statistics Canada said on Thursday, following the weakest two quarters since the 2008-09 recession and a 0.2 percent contraction in December.

A comeback in the manufacturing sector helped spark the turnaround, along with strength in the mining and energy sectors and the delayed start of the country's beloved hockey season after National Hockey League players and owners settled a months-long labor dispute.

The data suggests the economy is starting the year on a more solid footing after disappointing 0.6 percent annualized growth in the fourth quarter.

But economists are betting the first quarter will fall far short of the central bank's projected 2.3 percent growth.

"Once the darling of advanced economies, Canadian economic growth is expected to converge to be more in line with its peers," said Mazen Issa, macro strategist at TD Securities.

Canada recovered much more quickly from the 2008-09 recession than did the United States and others but has been spinning its wheels for several months as exports and manufacturing sputtered.

That has forced the Bank of Canada to acknowledge there is more slack in the economy than it had anticipated. As a result, it has gradually softened its talk of an interest rate increase, and this month said rates will remain on hold "for a period of time".

Issa said the January report was in line with TD's forecast of 1.6 percent growth in the first three months of the year, "and the broader narrative of a gradual grind higher over the course of the year."

The central bank will publish updated forecasts alongside its next interest rate decision on April 17.

Manufacturing expanded 1.2 percent in January as gains in fabricated metals and wood products offset a decline in transportation equipment.

The mining, quarrying and oil and gas extraction industry expanded 0.2 percent, while the arts and entertainment sector got a one-time boost of 4.1 percent as Canadians flocked to hockey arenas and sports pubs after the NHL labor dispute ended.

Players and owners reached a deal in January to end a four-month lockout of players. Canada has NHL teams in Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa and Montreal.

Industries that shrank in January included agriculture and forestry, construction, and finance and insurance.

In a separate report, Statscan said Canadian industrial product prices increased 1.4 percent in February from January, the biggest jump since June 2008 as prices for petroleum, coal and other commodities charged higher.

The Canadian dollar hit its strongest level in more than a month - at C$1.0145 versus the U.S. dollar, or 98.57 U.S. cents - immediately after the release of data. It later retreated and was little changed from Wednesday's North American close of C$1.0165, or 98.38 U.S. cents.

The solid GDP report along with an inflation rate that is below the Bank of Canada's 2 percent target has confirmed market expectations that the bank will hold rates at the current 1.0 percent until 2014.

"We're looking at possible downward growth revisions from the BoC again ... alongside slightly higher spare capacity estimates. We continue to expect an incrementally more dovish Monetary Policy Report in a couple of weeks," said Derek Holt, economist at Scotiabank.

Global forecasters surveyed by Reuters in February predicted the next rate hike will be in the first quarter of 2014. However, traders are pricing in a slight bias towards a rate cut later this year, based on yields on overnight index swaps, which trade based on expectations for the policy rate.

(Editing by Jeffrey Hodgson; and Peter Galloway)

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Hockey helps Canada's economy grow again in January

By Louise Egan

OTTAWA (Reuters) - Canada's economy bounced back from a year-end slump in January thanks to factories, mines and the return of professional ice hockey, but growth still looks too weak to match the central bank's upbeat outlook and interest rates are unlikely to budge until 2014.

Gross domestic product expanded by 0.2 percent in the month, Statistics Canada said on Thursday, following the weakest two quarters since the 2008-09 recession and a 0.2 percent contraction in December.

A comeback in the manufacturing sector helped spark the turnaround, along with strength in the mining and energy sectors and the delayed start of the country's beloved hockey season after National Hockey League players and owners settled a months-long labor dispute.

The data suggests the economy is starting the year on a more solid footing after disappointing 0.6 percent annualized growth in the fourth quarter.

But economists are betting the first quarter will fall far short of the central bank's projected 2.3 percent growth.

"Once the darling of advanced economies, Canadian economic growth is expected to converge to be more in line with its peers," said Mazen Issa, macro strategist at TD Securities.

Canada recovered much more quickly from the 2008-09 recession than did the United States and others but has been spinning its wheels for several months as exports and manufacturing sputtered.

That has forced the Bank of Canada to acknowledge there is more slack in the economy than it had anticipated. As a result, it has gradually softened its talk of an interest rate increase, and this month said rates will remain on hold "for a period of time".

Issa said the January report was in line with TD's forecast of 1.6 percent growth in the first three months of the year, "and the broader narrative of a gradual grind higher over the course of the year."

The central bank will publish updated forecasts alongside its next interest rate decision on April 17.

Manufacturing expanded 1.2 percent in January as gains in fabricated metals and wood products offset a decline in transportation equipment.

The mining, quarrying and oil and gas extraction industry expanded 0.2 percent, while the arts and entertainment sector got a one-time boost of 4.1 percent as Canadians flocked to hockey arenas and sports pubs after the NHL labor dispute ended.

Players and owners reached a deal in January to end a four-month lockout of players. Canada has NHL teams in Vancouver, Calgary, Edmonton, Winnipeg, Toronto, Ottawa and Montreal.

Industries that shrank in January included agriculture and forestry, construction, and finance and insurance.

In a separate report, Statscan said Canadian industrial product prices increased 1.4 percent in February from January, the biggest jump since June 2008 as prices for petroleum, coal and other commodities charged higher.

The Canadian dollar hit its strongest level in more than a month - at C$1.0145 versus the U.S. dollar, or 98.57 U.S. cents - immediately after the release of data. It later retreated and was little changed from Wednesday's North American close of C$1.0165, or 98.38 U.S. cents.

The solid GDP report along with an inflation rate that is below the Bank of Canada's 2 percent target has confirmed market expectations that the bank will hold rates at the current 1.0 percent until 2014.

"We're looking at possible downward growth revisions from the BoC again ... alongside slightly higher spare capacity estimates. We continue to expect an incrementally more dovish Monetary Policy Report in a couple of weeks," said Derek Holt, economist at Scotiabank.

Global forecasters surveyed by Reuters in February predicted the next rate hike will be in the first quarter of 2014. However, traders are pricing in a slight bias towards a rate cut later this year, based on yields on overnight index swaps, which trade based on expectations for the policy rate.

(Editing by Jeffrey Hodgson; and Peter Galloway)

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Canadian economy shows signs of recovery in January

OTTAWA (Reuters) - Canada's hard-pressed economy showed signs of recovery in January, when the nation posted its best trade performance in almost a year and building permits eked out modest growth after the biggest two-month fall in 24 years.

Canada is struggling to cope with weak exports, tough competition, uncertain foreign markets and a strong Canadian dollar, which combined to produce a 0.2 percent drop in gross domestic product in December.

Exports grew faster than imports in January, when the trade deficit shrank to just C$237 million ($230 million), Statistics Canada said on Thursday.

The deficit - less than the C$600 million predicted by market operators - represented the best performance since a C$21 million trade surplus in March 2012. Statscan revised December's deficit to C$332 million from an initial C$901 million.

"The improvement in the trade picture, small as it may be, is an important first step for the Canadian economy this year," Francis Fong of TD Economics said in a note to clients. "After an undeniably weak 2012, exports are going to be increasingly looked to as a driver of growth, given that households and government are expected to moderate spending.

"Over the course of 2013 and through 2014, global economic growth should accelerate, particularly in the U.S., and this should provide Canada's export sector with the shot-in-the-arm it needs to post a more sustained recovery."

The data, along with figures that showed a widening trade deficit in the United States, helped push the Canadian dollar slightly higher. By 9.55 a.m. (1455 GMT) it was trading at C$1.0292 to the U.S. dollar, or 97.16 U.S. cents. It had closed at C$1.0315 versus the U.S. dollar on Wednesday.

January exports rose by 2.1 percent - the greatest month-on-month increase since the 4.3 percent jump seen in December 2011 - thanks mainly to higher volumes for crude oil and crude bitumen as well as precious metals.

Imports increased by 1.9 percent on higher volumes, mainly due to higher shipments of energy products. Imports of metal ores and industrial machinery also grew.

"Higher imports might suggest more robust domestic activity in the month. What argues against this, however, is that much of the monthly rise in import volumes was due to energy and metal ores. Other key import categories were not as strong," wrote Derek Holt and Dov Zigler, economists at Scotia Capital.

Exports to the United States - which took 74.2 percent of all Canadian exports in January - rose by 2.6 percent while imports were up 2.1 percent. As a result, Canada's trade surplus with the United States increased to C$4.25 billion from C$4.03 billion in December.

Separately, Statscan said the value of Canadian building permits edged up by 1.7 percent in January after posting the biggest two-month fall in almost a quarter century.

The increase, less than the 5.3 percent expected by market analysts, follows revised drops of 10.4 percent in December and 16.5 percent in November.

Canada's booming housing industry, boosted by low interest rates, helped the economy recover from the worst of the 2008-09 recession. In a bid to head off a possible bubble, the government stepped in last year to clamp down on the sector with tighter mortgage rules. This has since cooled the market.

($1=$1.03 Canadian)

(Editing by Jeffrey Hodgson; and Peter Galloway)

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Canada house prices off 0.3 percent in January from December: Teranet

TORONTO (Reuters) - Canadian home prices fell for the fifth month in a row in January from December and the year-over-year price gain was the smallest since 2009 as the housing market continued to cool.

The Teranet-National Bank Composite House Price Index, which measures price changes for repeat sales of single-family homes, showed on Wednesday that overall prices fell 0.3 percent in January from a month earlier.

The index was up 2.7 percent from a year earlier, the smallest year-on-year gain since November 2009 and the 14th consecutive month of slowing house price inflation.

The report added to evidence that Canadian housing market activity has been slowing since the middle of 2012. Economists are debating whether the market will crash or manage a soft landing.

Canada's housing market avoided a meltdown after the financial crisis in 2009, helped by conservative lending standards and ultra-low interest rates.

But Canadian housing is swooning just as the U.S. market shows signs of recovery, in part because Canada's Conservative government last year tightened mortgage lending rules to slow the red-hot housing market.

The latest report showed prices dropped in January from December in seven of the 11 metropolitan markets surveyed, led by a 1.1 percent drop in Hamilton, a 0.8 percent decline in Vancouver and a 0.7 percent fall in Edmonton. Prices fell 0.4 percent in Toronto, 0.3 percent in Winnipeg, 0.2 percent in Montreal and 0.1 percent in Calgary.

Prices were up 1.4 percent in Quebec City and Victoria, 1.7 percent in Halifax, and 0.5 percent in Ottawa-Gatineau.

Year-on-year prices dropped 2.5 percent in Vancouver, but all of the other markets surveyed showed prices were still higher than a year ago.

Compared with January 2012, prices were 6.6 percent higher in Halifax, 6.0 percent higher in Quebec City, 5.9 percent higher in Hamilton, 5.3 percent higher in Toronto, 4.3 percent higher in Calgary, 3.4 percent higher in Winnipeg, 2.7 percent higher in Ottawa, 2.6 percent higher in Montreal, 2.0 percent higher in Edmonton and 1.1 percent higher in Victoria.

(Reporting by Andrea Hopkins; Editing by Janet Guttsman and Jeffrey Benkoe)

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