The Canadian economy posted stronger growth than expected in the last quarter of 2010, Statistics Canada reported Monday. But the news, which bodes well for Canada's job market as it recovers from the recession, was tempered by a CIBC report warning that Canadians' bank accounts are not growing fast enough.
The economy beat Bank of Canada predictions by a full point, growing 3.3 per cent at the end of last year, StatsCan said. Three factors fuelled the growth, according to the agency: a four per cent spike in exports, stronger manufacturing sectors in Ontario and Quebec and a 4.9 per cent uptick in consumer spending.
The agency also revised its results for third quarter growth to 1.8 per cent from one per cent, meaning Canada's overall GDP advanced 3.1 per cent last year. That is in comparison to a 2.5 per cent decline in 2009.
The rosy numbers have economists predicting growth above three per cent for the first quarter of this year, well above the Bank of Canada's projected 2.4 per cent. Bank of Montreal economist Douglas Porter predicts growth to come in at 3.5 per cent, while the Royal Bank and Merrill Lynch predict growth above three per cent.
BNN's Michael Hainsworth said the numbers have left economists divided over when Bank of Canada governor Mark Carney will begin hiking interest rates from their current historic lows. The overnight lending rate has been at one per cent since last year.
No one expects Carney to boost rates when he issues a short economic analysis on Tuesday. But when it happens is anyone's guess, Hainsworth said.
"We really don't expect to see the cost to borrow money in this country to start rising until the kids are let out school for summer vacation," Hainsworth told CTV News Channel.
"Others are saying maybe not until they go back to school at the end of the summer vacation. And then there are others at TD saying forget it, spring 2012 before the Bank of Canada sees the need to start raising the cost of borrowing money.'"
That may be good news to Canadians who have gotten used to cheap credit. But a new CIBC report is warning Canadians need to reconsider their spending habits and start padding their bank accounts now that the savings rate north of the border has hit an all-time low against savings in the United States.
The report says Canadians have spent the past 15 years relying on rising home prices to boost their wealth, and therefore have paid less attention to saving cash.
Canadians are now saving at a rate of 4.2 per cent, 1.6 per cent below the 5.8 per cent savings rate south of the border.
The report, entitled "Back to Old-Fashioned Saving," said Americans are saving more in the wake of the collapse of the U.S. housing market. However, because the Canadian real estate market has remained stable despite the economic downturn, Canadians haven't been scared into holding on to their money.
But with many experts predicting either a flat housing market, or a mild correction, over the short term, Canadians will have to save more, the report says.
"While we do not foresee a major correction, the real estate boom is clearly over and even a flat housing market will strip households of their primary means of passive savings," the report says.
The report comes on the heels of a number of others warning of rising household debt levels in Canada.
Earlier this month, the Vanier Institute of the Family said the average Canadian family is about $100,000 in debt and suggested the debt-to-income ratio is now a record 150 per cent. According to the report, the average Canadian family saved $8,000 in 1990, or 13 per cent, much lower than the current rate of 4.2 per cent, or $2,500.
Experts have predicted trouble for Canadians when Carney does decide to raise interest rates, which will make all manner of debt more difficult to pay off.
