Canada’s economy rebounded in January in surprise ‘double-barrelled blast of strength’

Canada’s economy showed a rebound in January, with real gross domestic product growing by 0.5 per cent for the month, Statistics Canada reported Friday.

The figures came after a contraction of 0.1 per cent in December.

January’s report was better than economists had been expecting. In a note, Andrew Grantham of CIBC Economics said the January figure was above the 0.4 per cent consensus expectation of economists’ forecasts.

Statistics Canada said the main drivers of growth for the month were also the largest contributors to the December decline.

“In January, the wholesale trade, transportation and warehousing, and mining, quarrying and oil and gas extraction sectors all rebounded from declines recorded in the previous month,” the federal agency said.

Wholesale trade rose by 1.8 per cent in January, helped by wholesalers of machinery, equipment and supplies, while the mining, quarrying and oil and gas extraction sector grew by 1.1 per cent. The transportation and warehousing sector rebounded 1.9 per cent in January. 

After remaining relatively flat in the second half of 2022, the accommodation and food services sector was also among the top contributors to growth in January, increasing by four per cent.

Advance figures for February released at the same time by Statistics Canada indicate that the economy continued to expand that month, although the 0.3 per cent increase is less than what was seen in January. The February figure will be updated when Statistics Canada puts out its official data on April 28.

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‘Double-barrelled blast’

Douglas Porter, the chief economist at BMO Capital Markets, said today’s “double-barrelled blast of strength is well above even the most optimistic views.” He said the January and February figures have BMO projecting first-quarter growth of 2.5 per cent.

Grantham said the strong growth in January, plus the surprise further advance in February, leaves overall GDP tracking at almost three per cent for the first quarter of the year, which is above the 0.5 per cent expected by the Bank of Canada.

Forecasters said the good start to 2023 economically could impact the central bank’s path on interest rates. Earlier this month, the Bank of Canada left its key interest rate target unchanged at 4.5 per cent. It was the first time the central bank kept its key policy rate on hold since it began raising it last year in an effort to cool rising prices.

“Suffice it to say that if the strength seen in the opening months of the year persists, the [Bank of Canada] is going to find itself in a tough spot,” Porter said.