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Positive trade, housing data suggest economic recovery taking hold

TORONTO - There are more signs that the Canadian economy is getting healthier and stronger, with housing and trade data adding to recent reports that suggest a recovery is indeed taking hold.

TORONTO - There are more signs that the Canadian economy is getting healthier and stronger, with housing and trade data adding to recent reports that suggest a recovery is indeed taking hold.

Statistics Canada reported Thursday that the country posted a trade surplus with the world of $799 million in January, compared with a surplus of $75 million in December.

In a separate report, the agency said the Canadian housing market remains hot and that activity is expected to pick up this spring as buyers rush to the market before new mortgage rules and the new harmonized sales tax takes effect in Ontario and British Columbia.

That export activity is rising even as the Canadian dollar remains strong - generally making goods made in the country more expensive - is a big positive, but also reinforces suggestions that the recovery will be a slow one.

The small increase in exports will likely boost first-quarter GDP, and indicates domestic strength, not demand from the U.S., will be key to recovery, said BMO Capital Markets economist Benjamin Reitzes.

"We're well on the road (to recovery) and the domestic economy is going to lead the way. I wouldn't look to exports to be the driver of growth, but domestic demand," he said.

Reitzes added that given the strength in Canada's domestic demand, a 1.7 per cent drop in imports that was responsible for a large chunk of the surplus isn't likely to become a trend.

"Meantime, sluggish U.S. demand and a strong Canadian dollar will keep a lid on export growth," Reitzes said.

"This theme is likely to persist through 2010, as Canada's domestic economy outperforms the U.S., likely keeping the merchandise trade account near balance."

Exports increased 0.5 per cent in January to $33 billion from $32.9 billion in December, as prices rose 0.8 per cent and volumes fell 0.3.

Imports, after two months of increases, declined 1.7 per cent to $32.2 billion in January from $32.8 billion in December as a result of a 1.2 per cent decline in volume and a 0.6 per cent drop in prices.

However, Reitzes said noted that the 2.3 per cent decrease in real imports and a smaller 0.6 per cent decline in real exports points to a potential boost to real economic growth in the first quarter.

In an RBC Economics report also published Thursday, chief economist Craig Wright said he believes a recovery is "solidly taking root in Canada" due to low interest rates and improved credit markets.

The report forecast Canada's economy is poised for real growth of 3.1 per cent this year and 3.9 per cent in 2011, fuelled by a peak in stimulus investment, improved credit markets and a recovery in consumer spending.

Strength in the housing market and investment by the private sector should provoke additional economic growth, it noted.

Statistics Canada reported Thursday that its new housing price index rose 0.4 per cent in January, the third straight monthly increase. Year over year, the index rose 0.1 per cent, the first such increase since December 2008.

Although exports have been increasing for five straight months, the pace of growth slowed in January as declines in machinery and equipment and automotive products nearly offset gains in industrial goods and materials and other consumer goods.



Machinery and equipment, consumer goods and energy products led the downward movement in overall imports.

Exports to the United States decreased 0.6 per cent and imports declined 0.5, largely as a result of lower trade of automotive products. Canada's trade surplus with the United States was $4.1 billion in January, almost unchanged from $4.2 billion in December.

Exports to countries other than the United States grew 3.8 per cent.

Krishen Rangasamy, an economist at CIBC World Markets, said the $800-million surplus and upward revisions in prior months are "nothing to be sniffed at," but cautioned some underlying data might provide a less upbeat message.

"January's goods trade surplus was primarily a result of a slump in imports, while exports were up only due to prices," he said.

"What matters for GDP is volumes, and the 0.6 per cent drop in real exports will evidently be a drag on January's output."

 
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