Economy expanded at 5% pace in Q4

Canada's economy expanded at a five per cent annualized pace in the fourth quarter, well ahead of the 0.9 per cent pace in the previous quarter, Statistics Canada said Monday.

The U.S. economy grew at a 5.9 per cent pace during the same quarter.

Canada's real gross domestic productincreased by 1.2 per cent during the October-December period, the largest quarterly increase since the third quarter of 2000. It grew 0.6 per cent in December alone, the fourth consecutive monthly gain.

Within that, goods-producing industries grew byone per cent, while the service sector expanded by 0.4 per cent in the month.

The headline five percent figure was better than the 3.3 per cent pace the Bank of Canada was expecting for the quarter in its most recent estimate. Thisincreases the odds that the central bank will begin hiking interest rates sooner than previously anticipated, to tame the inflation that generally comes with economic expansion.

Patricia Croft, chief economist with RBC Global Asset Management, told CBC News the figures showed "a powerful finish" for the economy at the end of the year and were far above the expectations of most economists. She predicted interest rates will begin to rise later this summer.

"What we saw was consumer spending came along, as did residential construction, which powered ahead.Government spending also very robust," she said. "The only sign of weakness was in business investment perhaps not too surprising but the latest survey of intentions suggests that may turn around as well."

'It certainly looks like we'll begin the process of higher interest rates in July of this year.' Patricia Croft, RBC Global Asset Management

Croft didn't expect any change in the Bank of Canada's interest rate announcement scheduled forTuesday but by summer, she said,"all bets are off."

With the Bank scheduled to meet in late July, Croft expected "based on this kind of information, it certainly looks like we'll begin the process of higher interest rates in July of this year."

Despite the strong showing to end the year, for 2009 as a whole GDP fell 2.6 per cent.

Lower production in the first half of the year was followed byessentially no change in the summer, Statistics Canada said, with notable growth coming in the year's last four months.

Since 1961, the earliest year for which data consistent with the current definition of GDP exists, the only other annual declines were the 2.9 per cent slumpin 1982and a 2.1 per cent drop in 1991, the agency said.

Production of goods dropped for a second consecutive year, down 9.2 per cent,while theoutput of services edged down 0.1 per cent.

All major categories of goods exports declined, as didmost major categories of service exports. The largest drop was a 33 per cent skid in automotive exports.