Canadian GDP has ‘rip-roaring’ start to the year, prompting economists to sweeten outlook

The Canadian economy continued its momentum in January, growing at an seasonally adjusted annualized rate of 2.3 per cent, Statistics Canada reported.

For the month, gross domestic product grew by 0.6 per cent, double the market consensus prediction of 0.3 per cent, the same as in December.

However, some economists are revising their estimates upwards after an apparent recovery in the fourth quarter of 2016, which led to an annual growth rate of 2.6 per cent.

The manufacturing sector had the strongest growth in January, expanding by 1.9 per cent, led by growth in fabricated metal, non-metallic mineral and wood product manufacturing.

But there was widespread growth across both goods and services production, Statistics Canada reported, with wholesale trade, the retail sector, construction, mining and oil and gas all on the upswing.

With the exception of October, gross domestic product has risen every month since June 2016.

Upgrading outlook for economy

BMO economist Doug Porter said he was revising his estimates for Canadian GDP growth in the first quarter to 3.5 per cent, up from 2.7 per cent and predicted annual growth of 2017 could come in at 2.5 per cent.

“Given the rip-roaring start to the quarter and the nice hand-off from late last year, even tiny gains in the next two months will yield quarterly growth of well over three per cent,” he wrote in a note to clients.

He noted that overall industrial production is up 3.4 per cent in the last year, the best gain since the oil price downturn. Oil and gas production alone was up two per cent in the past year, despite the wild swings in oil prices.

Porter predicts the Bank of Canada will hold the line on rates until 2018, but points out there will be pressure on the central bank to give a rosier outlook for the economy.

Bank of Canada governor Stephen Poloz said earlier this week that he remains cautious and that risks for the economy remain, signalling he will keep the benchmark bank rate low.

Trade risk from U.S. protectionism

RBC assistant chief economist Paul Ferley agrees the Canadian economy will outstrip the 2.5-per-cent growth rate for the first quarter predicted by the Bank of Canada.

But he points out the risks to Canada presented by trade protectionism in the U.S.

“Uncertainty about the potential increase in trade protectionism by the Trump administration presents a downside risk to growth going forward and reason to keep policy very accommodative,” he wrote in a note to clients.