(Bloomberg) -- Canada's economy grew at the fastest pace in two years in the third quarter as oil production surged, and a faster-than forecast increase in September signaled a broader recovery may be taking hold.
Gross domestic product expanded at a 3.5 percent annualized pace between July and September, Statistics Canada reported Wednesday from Ottawa. Output grew 0.3 percent on the month, faster than the Bloomberg economist survey calling for a 0.1 percent rise.
The report should provide some relief to Bank of Canada Governor Stephen Poloz, who had been considering a cut in interest rates after a disappointing start to the year that included a second-quarter contraction. The central bank's next rate decision is Dec. 7.
“The Bank of Canada will look at this report with a smile,” said Jimmy Jean, a strategist in the fixed-income group at Desjardins Capital Markets in Montreal. “Areas that were preoccupying from the Bank of Canada perspective performed better than expected” like business investment, he said.
The Canadian dollar was little changed immediately following the report, trading at C$1.3425 per U.S. dollar at 10:03 a.m. in Toronto.
Energy exports jumped 27 percent in the quarter, rebounding from losses in the prior period after devastating wildfires struck Alberta. Broadly, total exports increased 8.9 percent, the largest contributor to growth.
Consumption Surprise
One of the bigger surprises -- given recent sluggish retail sales data -- was an acceleration of consumer spending growth to 2.6 percent, its fastest pace this year.
Plus, there was some relief in the business investment that has held back the economy since oil prices plunged below $50 a barrel and made some Alberta heavy oil sites unprofitable.
Non-residential business investment rose 3.5 percent, the first gain since the third quarter of 2014, led by a major purchase of equipment for a Newfoundland offshore drilling project.
The numbers, including revisions released Wednesday that showed the first half was better than initially estimated by Statistics Canada, give the economy a much-needed dose of good news.
“For the first time in ages, this sets the stage for broad-based upward revisions to Canada's overall GDP growth rate, for both 2016 and perhaps 2017,” said Bank of Montreal Chief Economist Doug Porter.
The economy may grow 1.4 percent this year, he said, and the change in momentum backs “the view that the Bank of Canada isn't going anywhere with policy for a long time.”
The overall third quarter gain is in line with the central bank's October forecast of 3.2 percent. The central bank expects growth to slow to 1.5 percent this quarter.
One drag was a slowdown in the housing market that policy makers have long been seeking. Housing-related investments recorded the biggest decline since 2010 in the third-quarter, and this was even before the Canadian government implemented new tightening measures. Housing more than fully offset strong non-residential business investment, meaning overall business capital spending was down for an eighth-straight quarter.
--With assistance from Erik Hertzberg To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net. To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier, Stephen Wicary
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