The Canadian economy surged at an annualized rate of 3.6 per cent in the third quarter, the fastest pace seen in well over a year - and strong enough to raise concerns that the country's engine might be running a bit too hot.
The latest gross domestic product figures from Statistics Canada make it more likely the Bank of Canada will raise its key policy interest rate this week as it tries to tap the brakes on growth, analysts say.
Such a rapid a pace of growth hasn't been seen since the second quarter of 2004 and was spread fairly evenly across several sectors, analysts noted.
A healthy recovery in exports is seen as a particularly encouraging sign since it suggests manufacturers and exporters are finally showing signs of adjusting to the stronger currency, they said.
Bank of Canada governor David Dodge will likely respond with several more quarter-point interest rate increases, but won't feel the need to drive borrowing up costs quickly or by larger increments, said Marc Levesque, chief fixed income strategist at TD Securities.
"Make no mistake about it - today's data will leave the Bank of Canada squarely in tightening mode," he said.
"Dodge is looking at an economy that is creeping into a position of excess demand - not a comforting thought, given the fact that the overnight rate is still well below any reasonable estimate of neutral."
The Bank of Canada has suggested that GDP growth of about 2.8 per cent is as fast as the economy can go without triggering inflation. It had predicted growth of three per cent in the July-to-September period.
After raising short-term interest rates twice during the fall to the current level of three per cent, many expect the central bank to continue to nudge up borrowing costs to at least four per cent in the coming months.
Inflation isn't yet a concern, averaging 2.6 per cent in October, which is within the central bank's target band of one to three per cent, analysts said.
And large spending and tax pledges made by the federal Liberal government in its mini-budget in November won't likely have much impact on inflation since most of the money would flow later in a five-year plan - which now hinges on the outcome of the Jan. 23 federal vote.
The steady pace of Canadian growth is also reflected in strong job creation figures, which pushed the unemployment rate down to a 31-year low of 6.4 per cent in November. The addition of about 30,600 new full-time positions pushed the rate below October's 6.6 per cent, which was also a record not seen in three decades, Statistics Canada reported.
