OTTAWA - Canada's economy put it a solid if unspectacular performance in August, fuelled by a continuing rebound in the oil and gas sector .
The 0.3 per cent monthly pick-up surpassed economist expectations. It followed a strong 0.6 per cent July that reversed the previous month's interruption, which the Bank of Canada attributed to temporary impacts of the Alberta floods and Quebec construction strike.
Economists were encouraged by the even nature of the growth and the fact that August maintained some of the previous month's above-potential pace.
Markets also appeared buoyed, lifting the dollar 0.38 of a cent to 95.76 cents US.
Analysts said the positive results puts the economy back on a growth track and perhaps at a faster rate than the central bank's recent cautious forecast.
Royal Bank economist Paul Ferley calculated the third quarter, which ended in September, might come in as high as 2.8 per cent annualized, about one point stronger than the bank's latest estimate and one point above the increase in the second quarter.
Still, Ferley and other analysts said Bank of Canada governor Stephen Poloz will want more evidence of the momentum before changing his policy direction that, in an report last week, removed any talk of interest rate hikes.
Analysts said Canadians should plan on interest rates remaining where they are until early or mid-2015.
"This is a positive result. However, there are many risks going forward given the fiscal woes that have unfolded in the U.S. with the temporary government shutdown, the unresolved issues surrounding the debt ceiling and falling confidence levels," economist Arlene Kish of IHS Global Insight said in a note to clients.
In the monetary policy report issued last week, the Bank of Canada said it was concerned about persistently low inflation, which points to slack in the economy, and the consistent under-performance of exports, which the bank said was restraining overall growth.
The August numbers will not completely allay those concerns, but the growth drivers should offer the central bank some solace that the so-called "rotation" to export-based growth may not be too far off.
The key factor in the August numbers was a 2.8 per cent spurt in the oil and gas sector, a major exporter. Agriculture and forestry production also increased.
However, manufacturing, another key exporter, was down 0.3 per cent, although it was one of the few industries to register a decline.
Overall, growth was balanced, with goods-producing industries advancing 0.4 per cent and the services sector growing 0.3 per cent.
Kish noted that Canadian economic production is up two per cent from a year ago, at about potential, and a 13-month high.
"With only a small handful of industries that had output decline in the month, the economic momentum heading into September looks good," she said.
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