Canada’s economy shrank in the first part of 2015 but slowly recovered in the year's last quarter, and 2016 appears to be seizing on that positive momentum.
Real gross domestic product (GDP) grew 0.6% in January, according to Statistics Canada data released March 31, which was double the street’s expectations of 0.3% growth.
It is also the biggest monthly gain since July 2013.
BMO Economics’ Douglas Porter said in a note to investors that this release “changes everything.”
“Analysts had been quietly marking up their forecasts in recent weeks on the surprisingly robust data around the turn of the year, as well as on resilient consumers and housing markets,” Porter said. “Today’s blow-out result will simply accelerate and accentuate that trend.
“With fiscal stimulus hurtling down the pike, suddenly 2% GDP growth for this year looks doable, even with the drag from ongoing resource sector cutbacks.”
Graph source: Statistics Canada
Goods-producing industries output increased 1.2% in the month, due in large part to gains in manufacturing (up 1.9%) and mining, quarrying and oil and gas extraction (up 0.9%). Construction (up 0.5%), utilities (up 2.7%) and agriculture and forestry (up 0.3%) also increased in the month.
Services industry output grew 0.4%, which is the fourth consecutive monthly gain in this area. Retail trade, finance and insurance, public sector and transportation and warehousing all increased.
Partially offsetting these gains were decreases in wholesale trade (down 0.2%) and arts, entertainment and recreation (down 1.2%).
TD Economics’ Brian DePratto said there is now evidence that manufacturing- and export-led growth is now starting to come into the picture.
“Our research suggests that it can take up to six quarters for the impact of past currency movements to take hold, and as a result we expect exports to play a major role in supporting economic growth this year,” DePratto said.
Porter said this latest data means the Bank of Canada is now very unlikely to make any changes to the overnight rate, “and the Canadian dollar no longer looks overdone at around 77 cents.”
As of press time, the Canadian dollar was trading at around 77.1 cents U.S.
“Suddenly, the Canadian economy has managed to post a rip-roaring annualized growth rate of 5% over the past three months,” Porter said.
“And who would have believed earlier this year that the phrases ‘Canadian economy’ and ‘rip-roaring’ would be seen in the same sentence?”
@EmmaHampelBIV
