Economy growth steady despite August's market turmoil

Canada's economy grew by a better than expected 0.2 per cent in August, Statistics Canada said Wednesday. The news helped to power the loonie toward $1.06 US.

Canada's economy grew by 0.2 per cent in August, matching gains seen in June and July, Statistics Canada reported Wednesday.

The growth figure was better than economists had been expecting. Their forecast was for growth of 0.1 per cent for August — a month that saw financial markets take some wild swings over credit concerns.

Statistics Canada said a 1.3 per cent jump in retail trade, and a rise in oil extraction, propelled the economic growth, while a decline in utilities dampened it.

Industries producing goods and servicesadvanced, while gains were also seen in construction, forestry, mining and wholesale trade.

Manufacturing stood still in August, Statistics Canada said, as gains were seen in motor vehicle, clothing and beverage and tobacco manufacturing. However, the production of chemicals, motor vehicle parts and sawmills declined.

A big jump in oil prices, the Federal Reserve signalling it may be done with interest rate cuts, andthe GDP report helpedthe Canadian dollar to shoottoward the $1.06level.

The loonie gained0.92 of a cent to end at $1.0585 US. The loonie has not closed that high since August 1957.

Economists did not see many surprises in Wednesday's figures and see the Bank of Canada holding off on changes to interest rates.

"The Canadian economy is cruising along at a moderate growth rate, managing to stay on track despite the heavily conflicting forces buffeting it from both sides," said BMO Capital Markets economist Douglas Porter.

"In some ways, the recent underlying trend of around 2.5 per cent is an ideal growth rate from the Bank of Canada’s perspective, and they are likely to be content on the sidelines as long as growth stays around that rate," he said.

RBC senior economist Dawn Desjardins noted that the downside risks togrowthhave been mounting as the U.S. housing market slumpcontinuesand the loonie continues to soar.

"However, domestic demand remains solid and the economy is operating in a state of excess demand, which is likely to keep the Bank of Canada sidelined as policymakers assess the impact of these downside risks on the medium-term outlook," she said.