Canada’s economy got off to a healthy start for 2023 with a 0.5% GDP gain in January, following a slight contraction in December. Advanced estimates for February show another increase (0.3%), which puts real GDP growth on pace for a surprisingly strong annualized 2.9% in Q1. So, it looks like the recession will have to wait for another quarter.Mahmoud Khairy, Chief Economist, Canadian Chamber of Commerce.
While this pace of economic growth is well ahead of the Bank of Canada’s previous forecast of 0.5%, they are unlikely to revise their policy pause just yet. But this does increase the odds that the Bank’s next interest rate move could be a hike, not a cut, as financial markets have been expecting.
- It’s a good start of the year for Canada’s real gross domestic product (GDP) as it rose 0.5% in January, after a mild contraction in December, exceeding the advanced estimate of 0.3%.
- There were broad-based gains in both goods (0.4%) and services sectors (0.6%) and across most industries. Arts & entertainment, accommodation & food services, followed by transport & warehousing were the biggest gainers in January.
- Wholesale activity rebounded in January to record 1.8%. The imports of industrial machinery, equipment and parts drove the gains related to construction of a new liquified natural gas terminal in B.C.
- Mining, quarry and oil and gas extraction has rose by 1.1% in January, led by oil sands extraction. Mining increased by 1.0% due a sharp increase in coal exports to China.
- The manufacturing sector grew by 0.5% in January, led by durable goods (1.2%) for the third consecutive month, especially for passenger cars as the easing of supply chain challenges and increased production days contributed to higher production.
- The construction sector has its largest gain since March 2022 increasing by 0.7%, with increases in all subsectors, aided by unseasonably warm weather on the month.
- Transportation and warehousing started to recover by 1.9% in January after a bad weather caused the sector to contract in December. Rail transportation led the way (12%) with largest growth rate since May 2014.
- Accommodation and food services expanded by 4.0% as there was increased activity at restaurants.
- Arts, entertainment, and recreation gained 2.1% with increased attendance for hockey games (both NHL and Canada hosting the World Juniors).
- The public sector expanded for the 12th consecutive month by 0.3% in January reflecting increase in all subcomponents.
- Advanced estimates for February show 0.3% growth. Taken together, these estimates put real GDP growth on an annualized pace of 2.9% for 2023Q1, which is running well ahead the Bank of Canada’s forecast (0.5%) and budget forecast of -0.3%.