Economy expands faster than expected

Canada's gross domestic product increased at a 3.3 per cent annual pace in the fourth quarter, much faster than the 1.8 per cent seen in the previous quarter.

In absolute terms, the economy expanded by 0.8 per cent in the fourth quarter, Statistics Canada said Monday. That was better than the 0.4 per cent expansion in the the preceding three-month period.

Economists polled by Bloomberg were expecting a fourth-quarter annual growth rate of three per cent. The strong showing was also a full percentage point higher than the Bank of Canada's expectation.

"The stronger-than-expected turnout in the fourth quarter increases the risk that the Bank of Canada moves sooner than our anticipated July rate hike," TD Bank economist Diana Petramala said in a note. "However, we are still comfortable with our view that the Bank of Canada will remain on hold until mid-2011 and only move gradually with interest rates."

Canada's annual growth in the fourth quarter bettered the U.S. economy's 2.8 per cent pace in the same October-December period.

For 2010 as a whole, Canada''s GDP grew 3.1 per cent, following a 2.5 per cent decline in 2009. Canada's economic growth has now outpaced that of the U.S. for the fourth consecutive year.

"There's a lot of momentum to build upon," CIBC economist Avery Shenfeld said. "There is much to cheer about recent Canadian performance." Early data suggest an acceleration in automotive production that will feed through into export activity, he noted.

The agency said higher demand for exports (up four per cent) contributed the most to the GDP growth.

But domestic demand also expanded as consumer spending increased 1.2 per cent.

Investment in housing edged downward, for the second quarter in a row.  The value of new housing construction fell 5.7 per cent, the first drop since the third quarter of 2009.

Renovation activity also fell, down 0.9 per cent in the quarter. It has been weakening since the second quarter of 2010 after a string of quarterly increases of three per cent or more that began in the second quarter of 2009.

"Canada got its economic mojo back, and the solid fourth quarter growth rate had hints of a robust pace to start 2011 as well," Shenfeld said.