National gross domestic product (GDP) growth was a stunningly upbeat surprise in January, advancing 0.6% from December in a gain that is the best in several years and the fourth in as many months. The increase, which followed a 0.2% rise in December, reflected broad-based gains among sectors. The recent trend points to a lift in momentum from improved export demand, evident in firming manufacturing activity.
While January’s pace is unsustainable – a retreat in the coming month or two would not be surprising – GDP growth is tracking a firmer pace and should exceed the Bank of Canada’s outlook for the first quarter of 1% (annualized).
Assuming no growth in February and March, first-quarter growth climbs above 3.5%. A contraction of about 1% over the February-March period is needed to meet the bank’s outlook, which is unlikely.
Growth will decelerate given a subdued global growth picture, but our early-year outlook of 1.3% is low in light of January’s performance and last week’s federal budget stimulus plan. First-half growth forecast is revised higher to an annualized 1.7%, with full-year 2016 at 1.5%. The recent rapid appreciation in the Canadian dollar is some cause for concern, but a Bank of Canada rate cut is off the table at this point. We anticipate no change in policy rate through 2017.
Provincially, small-business confidence improved, according to the latest CFIB Business Barometer release. B.C. was the only province to post higher optimism in March, with its index reading rising to 62.5 points on a scale of one to 100, marking a gain of 1.4 points from February. A reading above 50 means that the number of businesses expecting their business performance to be stronger over the next year exceeds the number of those with a negative outlook.
This was the first gain since November, but sentiment remained favourable compared with the rest of the country, trailing only Nova Scotia and Quebec. Given weak oil prices, Alberta businesses are most pessimistic, with a reading of 27 points.
B.C. businesses have reason to be confident. Exports in goods and services like tourism are on the rise, as is TV and film activity, housing is robust and consumption and population growth is moderate.
That said, there are regional challenges as Interior and northern communities adapt to a challenging commodity price environment, but broad economic conditions remain favourable.•
Bryan Yu is senior economist at Central 1 Credit Union.
