2018.03.0422:37:00UTC+00Canada Economy Expanded Modestly in the 4th Quarter

The economy of Canada expanded modestly in the fourth quarter and is below the solid pace set during the first half of the year, supported by housing gains but hurt by a smaller accumulation of inventories.

The report from Statistics Canada is seen to keep the Bank of Canada in a holding pattern on interest rates at its policy meeting this week. The central bank is anticipated to hike borrowing costs later this year.

Canada's gross domestic product expanded by an annualized 1.7 percent in the fourth quarter of 2017. The economy expanded three percent for the year, its best performance since 2011, due to an annualized growth of four percent or better in the first two quarters.

Business capital formation increased by an annualized 9.5 percent in the fourth quarter, mostly due to investment in residential structures as both resale activity and new housing construction rose.

Businesses also invested more in machinery and equipment, particularly aircraft and other transportation equipment, while household spending also helped support the economy. Still, companies added less to their inventories than in the previous quarter, adding pressure on growth.

Although fourth-quarter growth dropped below the Bank of Canada's forecast of 2.5 percent, economists said they still expected policymakers to raise rates again in the coming months.

The central bank has increased rates three times since last July. Markets see a 72 percent likelihood of an increase in May, while a hike in July is fully priced in.