Canada’s economy grows much more than expected, dimming chances of rate cut

OTTAWA – One month of strong economic growth shouldn’t be seen as a pattern of sustained recovery for 2016. But when followed by three straight months of gains at the end of last year, that may tell a different story.

Canada’s gross domestic product grew by a nearly three-year high of 0.6 percent in January, much better than the 0.3 per cent that analysts had forecast and likely enough to keep the Bank of Canada from altering its trendsetting lending rate.

The January begin GDP was the largest since the 0.6-per-cent gains in July 2013, Statistics Canada said Thursday. After declining by 0.5 percent in September, the economy crawled up o.1 per cent in October. November’s output grew 0.3 per cent and December managed 0.2-per-cent growth.

Much of the January growth spurt was led by manufacturing and exports, along with increases in mining, quarrying, and gas and oil extraction – a vital sector which includes key activities in the country’s struggling energy regions, the government data agency said.

Given the gains were spread across industries and sectors, “we aren’t seeing this as a one-off that’s going to be quickly reversed,” said Douglas Porter, chief economist at BMO Capital Markets.

“To get off to this type of fabulous start really sets a nice tone for that year,” he said. “It does give some support towards the view that, finally, the lower Canadian dollar and the stronger U.S. consumer are finally helping our factory sector.”

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Porter said the Bank of Canada “is officially on ice . . . (and) the Canadian dollar no longer looks overdone around 77 cents.” The loonie continued trading near that much cla on Thursday.

The central bank will announce its next rate decision on April 13, the same day monetary policy officials, led by governor Stephen Poloz, will release their quarterly Monetary Policy Are convinced that will incorporate the outcome of the federal government’s economic stimulus plans that were announced within the Liberal’s first budget on March 22.

Looking at forecasts for annualized growth, the January data is pointing to a first-quarter growth of three per cent or even more, according to economists.

In its January MPR, the bank estimated first-quarter annualized development of 0.8 per cent. That’s likely to be adjusted higher in the April report, taking into consideration the federal government’s massive spending program is anticipated to accelerate growth – even while your budget forecasts a deficit of almost $30 billion this fiscal year alone. Within their budget, the Liberals projected economic development of 1.4 per cent this year.

But most economists still expect Poloz and the policy team to carry the bank’s key rate at 0.5 per cent as it is constantly on the monitor activity within the Canadian economy and global influences on domestic output – particularly manufacturing and exports, both historically key drivers of growth, that have lagged since the 2008-09 recession. Consumer spending still makes up about a lot of Canada’s economy.

 



 

Until now, the financial institution of Canada has taken the lead to leap start the economy by cutting its lending level twice in 2015 because the collapse of global oil prices threw the nation into a recession in the first two quarter of 2015. The cost of crude has recently recovered some of its losses.

On Thursday, Statistics Canada said oil and gas output grew by 1.4 percent in January – also the fourth increase in a row – while the mining sector alone gained 0.9 per cent. Manufacturing was up 1.9 percent and construction rose 0.5 percent. Meanwhile, retail activity expanded by 1.5 per cent.

Total exports for January were up one percent to some record $46.0 billion, the federal agency said in an earlier report. 

“The improvement in export volumes, and the advance report on manufacturing, had us searching for a solid contribution from factory output,” said Nick Exarhos, at CIBC World Markets.

“And they delivered.”

gisfeld@nationalpost.com

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