Manufacturing Upswing Aids GDP Growth

CBJ — Figures released by Statistics Canada reveal the Canadian economy expanded by 0.6% in January from December, more than expected, on widespread growth in goods- and service-producing industries.

The strong start to the year signals that first-quarter annualized growth could exceed the 2.5% that the Bank of Canada forecast in January.

“We believe that the wave of positive surprises in Canada’s economy will eventually prompt the Bank to shade its view a bit rosier (or at least less grey) – although we can’t see them moving on rates until 2018, given their steadfast view on the sustainability of the strength,” Douglas Porter, chief economist at BMO Financial Group, wrote in a note to clients Friday.

Manufacturing in January grew 1.9% on strength in virtually every sector, while mining, quarrying, and oil and gas extraction also increased by 1.9%.

Wholesale trade advanced by 2.4%, the largest monthly gain since July 2013, on higher imports and exports of motor vehicles and parts. Retail sales grew by 1.5%.

Senior Canada Economist at Capital Economics David Madani is warning that with a cool down in Vancouver’s housing market, and recent signals that the Ontario government is looking at measures to cool Toronto’s market, “housing investment could soon become a drag on the entire national economy.”

“For all these reasons, we still expect the Bank of Canada to remain cautious about the economic growth outlook this year,” he said in a note to clients. “But obviously that will be harder to do in light of January’s strong GDP numbers.”