OTTAWA – Canada's economic recovery picked up speed in the final quarter of last year, growing by a better-than-expected five per cent and putting pressure on the Bank of Canada to begin raising lending rates sooner than planned to keep a lid on inflation. The growth was fuelled by a jump in consumer spending, a strengthening housing market and increased exports, Statistics Canada reported Monday. Economists had expected expansion to accelerate by four per cent in the last three months of the year. The fourth-quarter results also beat the Bank of Canada's estimate of 3.3 per cent growth. "For a third consecutive quarter, growth in final domestic demand was led by increases in personal expenditures, government expenditures, and investment in residential structures," the federal agency said. "Export and import volumes both rose for a second consecutive quarter, with growth in exports outpacing that of imports in the fourth quarter." On a monthly basis, the gross domestic product was up 0.6 per cent in December – a fourth consecutive monthly advance. Most economists had forecasts growth of 0.4 per cent during the month. The Canadian dollar got a lift from the GDP numbers, rising one cent US on Monday to close at 96.01 cents US. The country's three-quarter-long recession was officially over in the third quarter of 2009, which saw slight annualized growth in gross domestic product of a 0.9 per cent, revised from an early estimate of 0.4 per cent. "Overall, this was an all-around solid report-card on the Canadian economy, and it suggests that after a very poor start to the economic recovery in Q3, economic activity surged handsomely in Q4," said Millan Mulraine, economics strategist at TD Securities. "Admittedly, we believe that this pace of economic growth is unsustainable and we expect the pace of economic expansion to be in the range of two per cent to four per cent," he said. "Comparatively, aside from the U.S., the Canadian economy appears to be out-pacing many of its peers." Statistics Canada said consumer spending rose 0.9 per cent in the fourth quarter – with households increasing durable goods purchases by 2.6 per cent, led by motor vehicles and household furniture and equipment. Investment in housing rose 6.5 per cent for the third straight quarter. "Fourth-quarter investment was led by new housing construction (up 7.1 per cent), the first quarterly gain since 2007," Statistics Canada said. "Resale activity and renovations continued the upward trend that began in the second quarter." Exports grew by 3.7 per cent, up from 2.9 per cent growth in the third quarter, led by automotive products. Imports were up 2.2 per cent, after an eight per cent increase in the previous quarter. The Bank of Canada has left its key lending rate at a record low 0.25 per cent in an effort to encourage economic growth. The central bank is expected to keep interest rates on hold at its Tuesday monetary policy meeting, after pledging not to raise borrowing costs until the second half of 2010 – unless inflation became a concern as the economy recovered. "This report shouts strength, and increases the odds the Bank of Canada will begin to hike interest rates in July and stay on that path in the following decisions," said Douglas Porter. deputy chief economist at BMO Capital Markets.

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