Canada's economy outperforming U.S.

Canada's economy expanded at a 1.8 per cent annual pace during the last quarter, the same growth seen at the start of the year and slightly better than what economists were expecting.

Statistics Canada said Friday that an increase in business investment was the biggest factor contributing to growth.

Economists had been expecting a 1.6 per cent gain. The Bank of Canada, however, had been forecasting the 1.8 per cent gain that came to be. For comparison purposes, the U.S. economy expanded at a 1.7 per cent annual pace during the same period.

Speaking to reporters in Toronto, Finance Minister Jim Flaherty said he was encouraged by the showing.

'This is something we'd like to see more of' Jim Flaherty on business investment

"While the growth is modest, it reinforces that Canada is on the right economic track compared to other countries," Flaherty said.

He was especially heartened by the uptick in business investment, since it shows the private sector has renewed confidence and is starting to drive expansion.

"This is something we'd like to see more of," he said.

Getting businesses to invest in themselves is something Flaherty and other policymakers such as Mark Carney at the Bank of Canada have been eager to see happen.

Just last week, Carney noted that Canadian businesses are currently sitting on record amounts of cash. That's great for their balance sheets, but from a macroeconomic perspective, that's "dead money," he said.

"Their job is to put money to work and if they cant think of what to do with it, they should give it back to their shareholders," Carney said.

The uptick in business investment is a sign they might be starting to do that.

Still, other private sector economists were not as impressed.

"Even though Canada's economy was just able to eke out a higher gain in output than the US in the second quarter, the pace is still considered slow," IHS economist Arlene Kish said in a note to clients.

"The economy is performing as expected by the Bank of Canada, but given what is unfolding on the world stage with the eurozone crisis and sluggish U.S. growth, Canada's economy will be hard-pressed to surpass the current rate of growth, without a major injection of optimism."