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Canada’s economy grows at slower rate

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TORONTO — Canada's economy grew at a slower than expected 2 percent annual rate in the second quarter, government data showed Tuesday.

Analysts had been expecting the economy to grow 2.5 percent. The U.S. economy grew by a 1.6 percent annual rate in the same period.

The figure is a sharp drop from the 5.8 percent annual growth Canada saw in the first quarter. Statistics Canada on Tuesday revised downward the first quarter figure from 6.1 percent reported initially.

Canada's central bank had predicted 3 percent growth in the second quarter. The worse-than-expected growth could mean the bank leaves interest rates unchanged next week.

Canada is the only Group of Seven nation to raise interest rates this year.

"It makes the Bank of Canada's call a close one. Both growth and inflation are now running below the (bank's) last forecast," said Avery Shenfeld, chief economist at CIBC World Markets.

Shenfeld said he was surprised government stimulus spending and the near $1 billion the government spent on security for the G-20 and G-8 summits in June didn't provide a bigger boost to the economy in the quarter.

Canada's strong economic recovery lost steam in July as the unemployment rate edged up to 8 percent. The country has made up nearly all the jobs lost during the recession over the last year, but July was the first month this year Canada failed to create jobs.

Canada withstood the global economic crisis better than most developed countries. There was no mortgage meltdown or subprime lending crisis in Canada where the financial sector is dominated by five large banks.

The Canadian dollar dropped 0.4 of a cent to 93.9 U.S. cents in the wake of the report.