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Modest growth report expected despite extreme weather

Analysts expect the economy picked up in January, although with weather still holding back its potential.


December may have been some kind of ugly, but analysts expect to see this week that the Canadian economy perked up in January, albeit it with weather still holding back its potential.

The economy contracted 0.5 per cent in the wintry final month of 2013.

Markets will get a look at the first month of 2014 when Statistics Canada reports on Monday, and economists expect to see growth of between 0.3 per cent and 0.4 per cent.

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"Recall, there was an ice storm in Southern Ontario and winter storms to the east the weekend before Christmas, which weighed heavily on activity in December," said senior economist Benjamin Reitzes of BMO Nesbitt Burns, which projects a reading of 0.3 per cent.

"Unfortunately, January weather wasn't great with much of the country experiencing extreme cold, likely restraining the rebound to some extent," he said.

The indicators to date suggest manufacturing, and wholesale and retail sales gained in January, Mr. Reitzes added, but the housing and construction industry weakened.

Analysts believe that when the first quarter is tallied, it will show a modest expansion of between 1.2 per cent and 1.6 per cent, annualized. Even the latter is "hardly a torrid pace," said Nick Exarhos of CIBC World Markets.

"We expect the coming quarters to be only in the 2-per-cent range, as gains from better weather are offset by a drag from inventories," Mr. Exarhos said. "All of this leaves GDP headed for a 2.1-per-cent increase in 2014."

Later in the week, on Thursday, Statscan is expected to report that Canada's trade balance bounced back to a surplus, albeit small, in February. If that proves true, it will have been the first time in eight months.

Many economists expect to see a slim surplus of $200-million, although some see less and some more.

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"Exports are expected to have performed well due to a large contribution from the auto sector (matching a bounce in U.S. transport orders) and from the lift that a weaker CAD will have provided to demand for consumer goods," said economists at Toronto-Dominion Bank, referring to the Canadian dollar by its symbol.

"Despite a solid increase in January, we are still tracking another solid, though more moderate, contribution from energy exports."

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