OTTAWA, Ont. The Canadian economy closed off 2006 on a positive note, growing 0.4% in December, the latest data from Statistics Canada indicates.

For the quarter as a whole, however, the pace of economic activity eased slightly as the economy advanced 2.7% over the year. Real gross domestic product (GDP) was up 0.4% in the fourth quarter, following an increase of 0.5% in the second and third quarters. Growth was largely driven by higher personal expenditure and the strengthening of exports. However, these gains were dampened by the draw-down of non-farm inventories.

The economy grew 0.4% in December compared to gains of 0.3% in November and 0.1% in October. Both the service (+0.5%) and the goods-producing industries (+0.1%) increased in December. Manufacturing, wholesale and retail trade posted the strongest results. Construction, financial services and tourism-related industries also advanced. These gains in December were partly offset by losses in the energy sector, and in the agriculture and forestry industries.
Growth in final domestic demand continued to outpace that of GDP in the fourth quarter. Final domestic demand was supported by personal expenditure, especially on services and on durable goods, along with business investment in non-residential structures. The acceleration in exports added significantly to GDP growth in the quarter.

The strength in personal expenditure was underpinned by spending on financial services, on restaurants and accommodation and on purchased transportation, especially air travel. Automotive products contributed to consumer spending and exports. The surge in exports was also driven by other consumer goods, as well as by machinery and equipment.

Despite these gains, GDP growth was moderated by a drop in inventory investment. Inventories of motor vehicles were down sharply due to growing demand in domestic and international markets.
The rise in the production of services (+0.7%) in the quarter contrasted with the decline (-0.4%) observed in goods-producing industries. Overall, growth came mainly from the construction and financial sectors and from the tourism-related industries. Manufacturing, wholesale trade and the energy sector were the main brakes on economic growth.

Industrial production (the output of utilities, mines and factories) retreated by 1.0% as a result of the declines recorded in all three sectors. Industrial production fared better in the United States, which fell only 0.2%.

The Canadian economy grew at an annualized rate of 1.4% in the fourth quarter. Growth in the US economy edged up to 2.2% in the same period, led by firmer exports and personal and government expenditure.

Economy-wide prices, as measured by the chain price index for GDP were up 0.3%, or 0.5% excluding energy. Energy prices have now moderated economy-wide price index growth for four consecutive quarters.