The Canadian economy kicked off the year on a positive note, growing by 0.6% on a month-on-month (m/m) basis in January. This print comes in above Statistics Canada’s advanced guidance and market expectations for a 0.4% m/m gain. The flash estimate for February points to another healthy advance of 0.4% m/m.
January’s reading was broad-based, with output expanding in 18 of 20 industries. The gain was primarily services driven (0.7% m/m), while the goods sector still eked out a 0.2% m/m advance.
The services side gain was carried by a robust 6% m/m rebound in the education sector, reversing the effects of the November and December Quebec strikes. Also contributing to the gain was a 0.8% m/m advanced in the healthcare sector and 0.4% m/m move in the real estate sector.
On the goods side, manufacturing’s 0.9% m/m increase fully recouped December’s decline, while the utilities sector provided an assist, growing by 3.2% m/m. Offsetting some of the goods side growth was a 1.9% m/m drop in the mining, quarrying and oil & gas sector, driven by a 4.2% m/m decline in oil and gas extraction.
The advanced reading of 0.4% m/m growth in February is expected to come from a rebound in oil & gas, with further gains coming out of manufacturing and the finance and insurance sectors.
Key Implications
January’s GDP print surprised to the upside against expectations that the economy would advance at a more modest pace. Importantly, if the expected carry forward of growth into February is realized, this would put growth in both months as the strongest since January 2023. With today’s print and next month’s guidance, first-quarter GDP is tracking well above potential growth and significantly higher than the Bank of Canada’s current forecast of 0.5% quarter-on-quarter annualized.
Make no mistake, these growth figures are robust, and presents a more difficult challenge for the BoC. Over the past two months, the Bank has received solid evidence that inflation is cooperating, but strong GDP data prints like today’s will keep them on their toes. Market pricing is still hopeful of a first interest rate cut happening in June, though we think a July cut is more likely. Excluding the education sector rebound, growth in January still presented a solid 0.3% m/m gain, while a seasonally warm winter may be contributing to the heating up of economic activity.
