Economy gains momentum with 1.1% GDP growth in February, best month since March 2021

Canada economy

The Canadian economy surged ahead in February as pandemic-related restrictions eased, fuelling expectations by economists that the Bank of Canada will opt for another oversized rate hike in June.

Statistics Canada said Friday real gross domestic product rose 1.1 per cent in February to post its largest monthly gain since March 2021.

The result was the ninth consecutive monthly gain and topped the agency's initial estimate for the month that predicted an increase of 0.8 per cent for the month.

The agency's early estimate for March this year indicated a gain of 0.5 per cent for the month. The official figure is expected May 31.

"With all the talk of how high inflation and rising interest rates will slow growth, today's GDP report reinforces the view that the momentum in Canada's economy is unrelenting," TD Bank economist James Orlando wrote in a report.

"The Bank of Canada won't need any more convincing that another 50 basis point hike is needed at its meeting on June 1."

The central bank raised its key interest rate target by half a percentage point for the first time in more than 20 years earlier this month to bring it to one per cent and warned more rate hikes are coming as it works to help bring inflation under control.

Governor Tiff Macklem told a House of Commons committee this week that in looking ahead to its next decisions the bank "will be considering taking another 50-basis-point step."

RBC economist Claire Fan said based on the February reading and early estimate for March the economy grew at an annualized rate of about 5.5 per cent in the first quarter.

"That's higher than our current forecast of 3.5 per cent and well above the 1.4 per cent annualized contraction in the same quarter for US GDP, as reported earlier this week," Fan wrote in a report.

"But capacity issues are growing to be more pressing for both economies. Labour shortages are exceptionally acute, and that's true even for close contact sectors that have yet to fully recover."

Statistics Canada said 16 of 20 industrial sectors grew in February with services-producing industries up 0.9 per cent while goods-producing industries added 1.5 per cent.

The accommodation and food services sector soared 15.1 per cent in February as pandemic-related restrictions put in place in December and January were eased.

Transportation and warehousing gained 3.1 per cent, while the arts, entertainment and recreation sector added 8.4 per cent for the month.

The construction sector climbed 2.7 per cent higher in February.