Construction in downtown Calgary, November 27, 2012.
Canada's economy is on somewhat firmer ground, though the outlook is muddied by a build-up of inventories and new questions about the strength of the U.S. recovery.
Shaking off a storm-battered December, the Canadian economy exceeded expectations by growing 2.9 per cent in the final three months of 2013, according to Statistics Canada data released Friday.
That was despite a 0.5-per-cent monthly contraction in December, due mainly to the effects of a massive ice storm that knocked out power to hundreds of thousands of homes in central Canada.
It marked the best quarter for the Canadian economy in more than two years, and it was faster than the 2.7-per-cent growth recorded in the third quarter.
Economists were quick to point out that the economy's performance wasn't quite as impressive when you unpack all the details – some of which will be tough to sustain in the months ahead. A temporary build-up of inventories contributed about half the growth and debt-burdened households did much of the rest.
Bank of Montreal chief economist Douglas Porter called the report "a mixed bag," pointing out that 2014 is off to a "wobbly" start. Nonetheless, he said the economy "looks to have had better momentum than widely appreciated," after Statistics Canada made significant upward revisions to its growth estimates for earlier quarters.
The Canadian economy grew at a faster pace than that of the United States, where the Commerce Department on Friday cut its estimate of fourth-quarter economic growth, bringing into question the speed of America's rebound.
Previously, the department estimated gross domestic product advanced at an annual rate of 3.2 per cent over the final three months of the 2013, following growth of 4.1 per cent in the third quarter. Combined, the figures gave the impression the U.S. economy was plowing through various impediments, including the October government shutdown and volatile markets.
The revised figure, which was in line with the consensus estimate on Wall Street, suggests those headwinds gave the U.S. economy some trouble after all.
Consecutive quarters of growth faster than 3 per cent raised hopes that the U.S. economy had found another gear after a slump in the middle of 2012 prompted the U.S. Federal Reserve to resume pumping money into the financial system. Friday's report isn't a reason to panic, but it does support analysts who say the U.S. is destined for another year of underwhelming economic performance.
"The downward revision to growth in [the four quarter] should work to temper expectations of a significant pickup in GDP this year," economists at Royal Bank of Scotland advised clients in a report. "We never felt that the strength in Q4 would be sustained this year, and in fact, the revisions to GDP show that the strength was exaggerated."
Royal Bank of Scotland predicts growth of 2.2 per cent in 2014, which would be only marginally stronger than the 1.9-per-cent increase last year. America's GDP averaged annual increases of 3.2 per cent between 1998 and 2006.
Outperforming the U.S. isn't necessarily a good thing. Bank of Canada Governor Stephen Poloz has been counting on a much stronger American economy to drive shipments and investment in the months ahead as home construction and consumer spending slow.