GDP surges, economists raise forecasts
Canada seen set to ‘shake off’ setbacks, on track to surpass growth expectations
An unexpected surge in Canadian GDP growth in January suggests the country has moved past a slowdown brought on by slumping oil prices and has some economists speculating that Canada’s economy could now outpace the U.S. for 2017.
Gross domestic product for January grew by 0.6 per cent, driven by a broad sweep of sectors, among them manufacturing, resources, wholesale goods and retail. On an annualized basis, January’s GDP was up 2.3 per cent.
But January’s result continues a trend of hefty monthly gains that points to an even faster pace of growth.
“The fireworks just went off for Canada,” said Avery Shenfeld, chief economist with CIBC World Markets Inc.
“Although it is still early days and risks abound, signs are pointing to an economy that looks increasingly poised to shake off the setbacks of recent years,” said Brian DePratto, senior economist with TD.
Growth was reported in 15 out of 20 major industries, Statistics Canada reported Friday. Leading the charge are sectors that make goods and services for export, such as manufacturing. That’s precisely the sort of activity the Bank of Canada has been hoping to see.
“Even for those of us with enough experience to downplay any one data point, the fact that GDP is up 2.3 per cent from a year ago, and is gaining leadership from the ‘right’ sectors, makes a compelling case that we’ve put the post-oil-dive blues behind us,” Shenfeld said.
“This broadening in economic strength is expected to contribute to GDP growth continuing at an above-average pace soaring to likely four per cent in the first quarter following stronger-thanexpected gain of 2.6 per cent in the fourth quarter,” said Paul Ferley, assistant chief economist with RBC Economics.
Canada’s economy has grown at least 0.3 per cent in seven out of the past eight months. To put that in context, if you look back over the past 15 years, the Canadian economy has grown an average of 0.17 per cent a month.
The 0.6 per cent result for January was double the already elevated level of growth that economists had expected. Economists with CIBC, Royal Bank of Canada, and Scotiabank each published notes that said the January number, if the momentum holds, puts Canada on track to hit first quarter GDP growth of four per cent, well above the 2.5 per cent growth the Bank of Canada published in its January forecast.
“Clearly, if four per cent growth is delivered — and it’s still very early for Q1 tracking with two-thirds of the data still ahead, so that’s a big ‘if’ — and if that remains durable beyond Q1, then it incrementally leans toward a better scenario than the BoC and most others are painting for the Canadian economy,” said Derek Holt, head of capital markets economics with Scotiabank.
Bank of Montreal lifted its first quarter growth forecast to 3.5 per cent from 2.7 per cent. The bank also decided to up its full-year forecast to 2.5 per cent from 2.3 per cent.
That’s significant because it means BMO is now predicting Canada will economically outperform the U.S., where things have been on such a tear that the U.S. Federal Reserve has started to raise its benchmark interest rate.
“We have liftoff,” said Douglas Porter, chief economist with BMO Financial Group. “We would also point out that we now see Canadian GDP growth outpacing the U.S. in 2017 (which we have pegged at 2.4 per cent), quite the dramatic turnabout from the past two years.”
The Bank of Canada’s most recent economic forecast dates from January, and an updated outlook is expected when it releases its next interest rate announcement and monetary policy report on April 12.
In recent remarks, Stephen Poloz, governor of the Bank of Canada, has said nothing to suggest the central bank believes the economy is ready to absorb nearterm interest rate hikes. And despite the January GDP news, none of the big Canadian banks on Friday budged from their current expectations that the BoC won’t hike its trendsetting interest rate, currently 0.5 per cent, until next year.