May 1, 2018 / 12:39 PM / 3 months ago

UPDATE 2-Canada economy grows 0.4 pct, Q1 could be better than forecast

(Adds analyst commentary)

By David Ljunggren

OTTAWA, May 1 (Reuters) - The Canadian economy grew 0.4 percent in February, Statistics Canada said on Tuesday, a sign that first-quarter growth could outperform the Bank of Canada’s relatively weak expectations.

Analysts in a Reuters poll had forecast February gross domestic product would increase by 0.3 percent after shrinking 0.1 percent in January.

Even if March’s GDP figures are flat, Statistics Canada analysis shows that annualized first quarter growth would be 1.6 percent, greater than the 1.3 percent in the Bank of Canada’s latest forecast on April 18.

The central bank, which has raised interest rates three times since last July as the economy strengthens, says future hikes will depend heavily on economic data.

Governor Stephen Poloz is due to make a speech later on Tuesday on near-record levels of household debt. The bank is concerned about what rising interest rates will have on already stretched consumers.

Paul Ferley, assistant chief economist at Royal Bank of Canada, noted that when the bank kept rates unchanged on April 18 it seemed in no rush to tighten monetary policy.

“I don’t think the news today is strong enough to prompt an immediate response at the upcoming meeting (on May 30),” he said by phone.

The Canadian dollar firmed on the news and by 9:20 a.m. EDT (1320 GMT) was trading 0.1 percent higher at C$1.2836 to the greenback, or 77.91 U.S. cents.

The output of goods-producing industries expanded by 1.2 percent as the mining and oil and gas extraction sector recovered from unscheduled maintenance shutdowns at some oil sands facilities.

Services-producing industries edged up 0.1 percent as increases in most sectors offset declines in wholesale trade and real estate.

“Overall, encouraging, but not enough to force the understandably cautious Bank of Canada back into action,” said Paul Ashworth, chief North American economist at Capital Economics.

Additional reporting by Fergal Smth in Toronto; editing by Bernadette Baum and Jonathan Oatis

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