Canada's economy bounces back

Canada's economy rebounded in April, posting its best monthly growth in almost a year, supporting the widely held view that the Bank of Canada will increase interest rates in the fall. The economy grew a slightly better-than-expected 0.4 percent in April, lifted by oil extraction, the end of student strikes in Quebec and higher retail sales, Statistics Canada said on Thursday.
It was the best month for growth since June, 2004, and marks a turn around from March's decline of 0.1 percent.
Analysts had expected, on average, growth of 0.3 percent in April.
"It gets us off to a reasonable start for the second quarter ... The part that the Bank of Canada will be impressed by is the output increasing in manufacturing," Scotiabank economist Mark Chandler said.
The heavily export-oriented manufacturing sector rebounded with 0.3 percent growth in April after two straight monthly declines.
Trade was a big drag on growth in the second half of last year and the first quarter of this year as Canadian manufacturers adjusted to a strong Canadian dollar.
The Canadian dollar has levelled at around 80 cents to the US dollar since the start of 2005, after jumping about 30 percent in 2003-04.
The Canadian dollar rose after the release of the data. It was at C$1.2255 to the US dollar, or 81.60 US cents, up from C$1.2285 to the US dollar, or 81.40 US cents, at Wednesday's close.
But low interest rates have fuelled strong growth on the domestic side. The presumption at the Bank of Canada is that eventually the trade drag will wane and interest rates will have to rise.
"Today's data supports other evidence that the peak of the struggles in that sector that were induced by the higher dollar may be near the end," TD Securities economist Rudy Narvas said in a note.
"While the data does not warrant the Bank of Canada to raise rates in July, it does increase the possibility that it may act in the fall," Narvas said.
The central bank has left its benchmark overnight rate unchanged at 2.5 percent since October.
Most economists expect a rate hike in the second half of this year, and only four of Canada's 12 primary bond dealers expect the bank to raise its key rate - by 25 basis points - at its next policy announcement on July 12.