GDP Rose 0.3 Percent to an annualized $1.59 trillion

August gross domestic product grew faster than economists forecast as a result of record extraction of oil and natural gas. This puts the Canadian economy on track for its fastest quarterly expansion in two years.

Output rose 0.3 percent to an annualized $1.59 trillion Statistics Canada said today in Ottawa, beating the 0.1 median forecast in a Bloomberg economist survey.

Growth will likely quicken to about a 2.5 percent annualized pace in the fourth quarter according to economists at CIBC World Markets and TD Securities, the fastest since a 6.2 percent gain two years ago. Stronger growth would reduce what the Bank of Canada last week called “significant” slack in the economy, which led policy makers to drop language about raising interest rates.

Statistics Canada reported that oil and gas extraction rose 2.8 percent in August to a record C$97.6 billion. Other industries made a more modest contribution to growth during the month, with wholesaling rising 0.4 percent and manufacturing falling 0.3 percent.

Last week, the Bank of Canada predicted third-quarter growth of 1.8 percent, after it slowed to 1.7 percent in the second quarter as a result of soft energy exports and business investment. The Bank of Canada kept its key overnight interest rate at 1 percent. Governor Stephen Poloz said slack in the economy would persist until around the end of 2015.

In 2012, GDP grew by 2.0 percent in August, Statistics Canada said, accelerating from July’s revised 1.5 percent.

Other economic indicators suggest a slow expansion, including inflation that’s close to the bottom of the central bank’s 1 percent to 3 percent target range and a reduced pace of job growth this year.

Statistics Canada also reported that average weekly earnings of non-farm payroll employees rose 1.3 percent in August from a year earlier while the average number of hours worked fell to 32.9 from 33.1 over that period. The number of workers on payrolls rose 0.3 percent in August from July, or by 51,300.

The markets have advanced to the point where positive developments appear to be priced in while the longer-term headwinds have been ignored. This could set the stage for some pullbacks in the market as these underlying issues surface.