Economy grew at slower pace in fourth quarter: StatsCan

That’s slightly weaker than the Bank of Canada’s call, but the miss was more than compensated for by an upward revision of third-quarter growth to 4.2% from the previously reported 3.5%.

TD Bank chief economist Craig Alexander called the upward revision in the third quarter a pleasant surprise. Averaging out the seesaw year, 2011 produced a 2.5% advance, which is above the long-term sustainable growth rate for the economy.

As well, the December bump sets up the economy for a better than expected 2012, he said.

“It’s not a bad outcome, it doesn’t constitute booming growth, but it means the Canadian economy delivered a relatively solid performance in 2011,” Alexander said.

He added that his bank will likely revise its below consensus expectation for this year from 1.7% to about 2.2%, slightly stronger than the central bank outlook.

“Overall, the economy has slightly less slack than the Bank of Canada expected, and the markets may begin to more fully believe the bank when it talks of ‘a gradual reduction in monetary stimulus over the projected horizon’,” said Douglas Porter of the Bank of Montreal in a note to clients.

The markets have been buoyed by a sudden spate of positive signals after months of doom and gloom, as well as trepidation that the European sovereign debt crisis could implode.

Earlier in the week, the U.S. — Canada’s closest economic partner and a key for exporters — revised its fourth-quarter growth up to three per cent in another indication that fears of a woeful 2012 are receding.

Alexander said the outlook today is markedly different from what it was during the fall, when the risk of a European debt crisis going global were elevated and financial markets were teetering.

Europe now appears to be making progress in containing their debt issues, the U.S. has rebounded stronger than expected and begun creating 200,000 jobs monthly, and commodity prices have firmed, a boost for Canada.

While job growth in Canada remains weak, Alexander said he expects even that indicator will turn upward soon.

The brighter outlook could have implications for Finance Minister Jim Flaherty’s March 29 budget.

Alexander and other leading economists are scheduled to meet with the minister on Monday to brief him on future prospects. While some have cautioned against an overly austere budget, that may not be as much a concern if the economy is on a sounder footing and facing fewer booby-traps.

The federal government is believed to be looking at setting in motion spending cuts totalling about $5 billion annually, as well as unveiling plans to rein in growth in the cost of elderly benefits.

Among the positive details in the Statistics Canada report, consumption accelerated, as did business capital spending, and exports were robust.

On the other side of the ledger, there were few weak points.

“The most interesting aspects of the report are the things which didn’t happen — consumption didn’t fall markedly, the government did not impose a fiscal drag on the economy and exports grew in spite of a global economic slowdown,” added Dov Zigler, a financial markets economist with Scotiabank.

Still, analysts said it was too early and conditions are still too soft and uncertain to materially affect the Bank of Canada’s thinking on interest rates. Analysts are unanimous the bank is on hold for some time and will keep the policy rate at one per cent, where it’s been since September 2010, at the next scheduled policy date on March 8.

Among other details of the report, all major industrial sectors grew in 2011, except arts, entertainment and recreation.

Production of goods grew 3.6% while services expanded 2.2%. Mining and oil and gas extraction, construction, the public sector (education, health services and public administration combined) and manufacturing were the main contributors to overall growth.

Meanwhile, housing investment slowed to 0.8% in the quarter, as did renovations.