The Canadian economy has recovered after a minor energy-related 0.1% drop in January, according to new data from Statistics Canada, and analysts are calling the bounce-back “better than expected,” as it beat the street’s expectation of 0.3%.
The increase, which brought growth to the highest level seen in nine months, was driven by a resurgence in mining and oil and gas extraction, which grew 2.4% in the month, returning to “more normal levels following some unexpected production issues” in January according to CIBC Economics’ Royce Mendes.
Manufacturing activity increased 1%, bringing the year-over-year growth to 4.9%, which according to BMO Economics’ Benjamin Reitzes is getting close to the strongest growth in eight years. Construction increased 0.7% for the second consecutive month. Goods-producing industries output increased 1.2%, due in part to manufacturing and construction. Conventional oil and gas extraction increased 2.9%, and non-conventional extraction rose 3%. Durables manufacturing increased 1.8%.
On the other hand, wholesale trade (-0.5%), other services (-0.4%) and real estate (-0.2%) all saw declines in the month.
The data puts the average annualized Q1 GDP at 1.8%, which is in line with the Bank of Canada’s expectations. According to Mendes, however, today’s strong data is likely the result of a faster-than-expected rebound, meaning growth has just been pulled forward.
“The healthy bounce-back in February will, however, simply eat away at some of the growth we were expecting in March, meaning it doesn’t materially change the outlook for quarterly GDP,” Mendes said in a note to investors.
Mendes went on to say this limits the possible implications for a change in the overnight rate.
“As a result, we’re still leaning towards the Bank of Canada waiting until July to hike rates.”
Reitzes calls today’s data “encouraging,” even though the better-than-anticipated growth was driven in large part by increases in oil. He said there is reason to be optimistic about growth in the coming months.
“Since the big drag from the new mortgage rules is likely behind us – they subtracted heavily from Q1 growth – there’s reason to be a bit more upbeat on the coming months even if growth isn’t likely to deviate much from around 2%,” he said.
He agreed with Mendes’ call for the next rate hike to take place in July.
The Canadian dollar took a slight beating after StatsCan’s announcement. It fell four-tenths of a cent to 77.5 cents U.S., but rebounded slightly as of press time, settling around 77.67 cents U.S.
@EmmaHampelBIV
