The economy kicked off the year with a bang, rising faster than expected in January, providing further evidence of robust growth but not enough to alter expectations that the central bank will maintain its dovish position.
Statistics Canada said Friday gross domestic product increased 0.6 per cent in the first month of the year, with strength across both goods- and service-producing industries. Economists had expected a gain of 0.3 per cent, according to Thomson Reuters.
“One month does not a year make, but Canada opened its 150th birthday celebration with January alone registering a quarter of the gains expected for the year as a whole,” CIBC chief economist Avery Shenfeld wrote.
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“Even for those of us with enough experience to downplay any one data point, the fact that GDP is up 2.3 per cent from a year ago, and is gaining leadership from the ‘right’ sectors, makes a compelling case that we’ve put the post-oil-dive blues behind us.”
The increase for January was the biggest increase for the economy since June 2016, when it also advanced by 0.6 per cent.
The strong figures cap a recent string of better-than-expected economic data that included retail, wholesale and manufacturing sales as well as job creation.
The Conference Board of Canada also reported Friday its index of consumer confidence rose 1.1 points in March to 111.7, its highest level since January 2010.
Still, Bank of Canada governor Stephen Poloz said earlier this week that risks for the economy remain.
“We’ve had positive data points in the last three years, too – and they didn’t last,” the central bank chief said Tuesday. “So, we’re being very cautious in that outlook.”
In its most recent monetary policy report, the Bank of Canada predicted growth in the first quarter of 2017 to come in at an annual pace of 2.5 per cent.
TD Bank raised its forecast Friday for the first quarter to an annual pace of 3.4 per cent compared with the its earlier expectations of 2.6 per cent.
TD senior economist Brian DePratto said the central bank will likely also raise its forecast in the next monetary policy report on April 12, but he expected Poloz to remain prudent.
“Core inflation remains very weak in Canada and we still haven’t seen any kind of meaningful comeback in business investment, so those are two areas that he’s probably going to remain concerned about,” DePratto said.
“He’ll be happy but I don’t think this is really going to change the tone for him. He’s going to want to see a little bit more.”
The Bank of Canada’s key interest rate has been set at 0.5 per cent since July 2015, when it cut its target for the overnight rate by a quarter of a percentage point.
Statistics Canada said Friday that goods-producing industries grew by 1.1 per cent in January, while service-producing industries rose 0.4 per cent. The manufacturing sector was the largest contributor to the increase as it advanced 1.9 per cent.
A partial rebound in the oil and gas industry also helped the mining, quarrying, and oil and gas extraction sector, bumping it up 1.9 per cent after contracting 0.5 per cent in December.
Oil and gas extraction was up 2.0 per cent, offsetting some of its decline in December. Mining and quarrying excluding oil and gas extraction gained 1.1 per cent in January.