Canada raises interest rates

OTTAWA – Canada’s economy expanded
at the fastest clip in more than a decade in the first quarter, fuelling
expectations that the Bank of Canada will become the
first G7 country to raise interest rates since the start of the recession.

Statistics Canada said consumer
spending, a hot housing market and a return of business investment helped boost
gross domestic product by 6.1 per cent at an annual rate
in the quarter, the biggest jump since the fourth quarter of 1999.

Analysts had predicted 5.9 per cent
annualized GDP growth following revised 4.9 per cent growth in the fourth
quarter of last year.

“It would take some fancy
footwork for the Bank of Canada to pass on hiking rates after the Canadian economy just doubled the U.S. first-quarter growth
pace,” said Scotia Capital economists Derek Holt and Karen Cordes Woods in
a note.

Two quarters of speedy recovery
following three quarters of contraction have left real GDP
about 0.5 per cent lower than its prerecession levels, economists said.

The economy grew 1.5 per cent
compared with the fourth quarter of last year, Statscan said.

The GDP numbers were broadly in line with the Bank of Canada’s latest projections. Most
forecasters expect the central bank to raise rates by 25 basis points on
Tuesday to 0.50 per cent.

Consumer spending continued to be a key driver of recovery from Canada’s mild
recession, and while exports continued to recover in the period, they were
outpaced by import growth.

The housing market remained hot in
the first quarter because of heavy investment in new construction and home
renovations by owners taking advantage of a tax credit that expired on 1 February.

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