Canada’s economy kept growing at the start of this year, defying expectations of near-zero growth and an eventual technical recession in the face of the highest interest rates in 15 years.
(Bloomberg) — Canada’s economy kept growing at the start of this year, defying expectations of near-zero growth and an eventual technical recession in the face of the highest interest rates in 15 years.
Preliminary data suggest gross domestic product expanded 0.3% in February, Statistics Canada reported Friday in Ottawa, led higher by oil and gas, manufacturing, and finance and insurance sectors. That followed a 0.5% expansion in the previous month, stronger than expectations for 0.4% growth in a Bloomberg survey of economists.
The data suggest while some rate-sensitive sectors like housing have already cooled, overall economic growth is still holding up better than expected. It’s also at odds with a flurry of early estimates released last week that suggested a pullback in economic activity, with retail, wholesale and manufacturing sales all falling in February.
Friday’s report will test the Bank of Canada’s conditional rate pause as policymakers look for evidence that monetary policy is sufficiently restrictive to bring inflation back to the central bank’s 2% target. An accumulation of stronger-than-expected data may prompt policymakers to stay on the sidelines for longer or even hike again.
Traders in overnight swaps markets, however, are betting the Bank of Canada’s next move will be a cut, given turmoil in global financial markets after the failure of regional US lenders and a government brokered takeover of a European banking giant.
The Canadian economy is now on track to expand at an annualized rate of 2.8% in the first quarter, assuming growth in March comes in flat. That’s much more robust than the 0.5% annualized pace forecast by the central bank in January. While policymakers had already expected growth in early 2023 to be “a bit stronger” than previously predicted, the upside surprise points to sustained economic momentum.
Economists in a monthly Bloomberg survey see 1% annualized growth in the first three months of this year. But that’s expected to be followed by two straight quarterly contractions.
During deliberations for the central bank’s March 8 decision to hold rates steady for the first time in nine meetings, policymakers said they saw “clear signals” hikes so far were curbing demand. But there are few signs in recent data that the economy is gearing down.
Both goods-producing and services-producing industries were up in January, with nearly all sectors posting increases, except agriculture, utilities and management of companies.
Rebounds in several industries drove the January gain. Many of the key growth drivers were the largest contributors to December’s 0.1% decline, including wholesale, transportation, and oil and gas industries. Accommodation and food services activity was also a key contributor.
Wholesale trade rose 1.8% in January, more than offsetting declines in the previous two months, while transportation rebounded 1.9% and the oil and gas sector expanded 1.1%.
Construction posted a 0.7% gain, the largest since March 2022, reflecting increases in all subsectors. Accommodation and food services rose 4%, recreation increased 2.1%, manufacturing grew 0.5%, and the public sector expanded 0.3%.
–With assistance from Erik Hertzberg.
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