Financial Post : Canadian growth best in ten years

Monday, May 31, 2010 - The Canadian economy posted better-than-expected growth in the first three months of 2010, marking the best quarterly performance in over a decade, Statistics Canada reported Monday -- and all but cementing the likelihood of a Bank of Canada rate hike this week.

"While there are some questions on the sustainability of the rebound, there is simply no question that the early stages of Canada's recovery exceeded even the most optimistic expectations," said Douglas Porter, deputy chief economist at BMO Capital Markets.

The consensus as of late last week was that the Bank of Canada would raise its key benchmark rate on Tuesday, by 25 basis points to 0.50%, given the stronger-than-expected domestic economy. The first-quarter result all but cements that view.

The solid gains over the fourth quarter of 2009 and the start of 2010 "provide strong evidence" and the near-zero interest rates, combined with a dollop of fiscal stimulus, "have helped pull the Canadian economy out of its recent recession," said Paul Ferley, assistant chief economist at Royal Bank of Canada. "With the monthly numbers showing strong momentum late in the first quarter, the Bank of Canada will take reassurance that this strength is likely to be sustained near term. This suggests an environment where the Bank of Canada will continue to withdraw stimulus from the system."

There was a belief the central bank could hike its target rate by 50 basis, but market uncertainty due to developments in Europe might cause the central bank to hold back.

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