The Canadian economy grew at a slightly better than expected annual rate of 3.7 per cent through the first three months of the year — news that helped push the loonie higher on Thursday.

Economists had been projecting an annualized growth rate of 3.6 per cent for the first quarter.

In the wake of the strong growth reading, the Canadian dollar traded as high as 93.76 cents US — its highest level since July 1977 — before slipping back. The loonie closed at 93.49 cents US, up 0.37 cents US.

In the last three months of 2006, the Canadian economy grew at an annual rate of 1.5 per cent.

Statistics Canada said that a slight pickup in consumer spending and an inventory buildup resulting from strong production spurred the first-quarter advance.

On a month-to-month basis, economic output was up 0.3 per cent in March, after increasing 0.4 per cent in February and 0.1 per cent in January. Service-producing industries surged ahead in March while the output of goods-producing industries fell, Statistics Canada said.

Growth in goods

Output in the services sector grew by one per cent in the first quarter, Statistics Canada said.

Goods production rose by 0.9 per cent, ending three quarters of declines. The expansion came mainly from the energy sector, wholesale and retail trade, the financial sector and construction.

After the Bank of Canada signalled earlier this week that increases in interest rates seemed likely to keep inflation under control, BMO Capital Markets economist Sal Guatieri said that Thursday's economic growth report tilts the odds further in favour of a July interest rate hike.

"This latest data release reflects a Canadian economy which is clearly running significantly above the Bank of Canada’s estimate of the potential growth rate of 2.8 per cent," said TD Bank economist Pascal Gauthier.