Canadian GDP rises in January

Real gross domestic product () in Canada rose 0.5 per cent in January, following a slight contraction (-0.1 per cent) in December. Both goods-producing (+0.4%) and services-producing (+0.6%) industries were up in January, as 17 of 20 industrial sectors posted increases, reported Statistics Canada on Friday.

“Advance information indicates that real increased 0.3 per cent in February. Increases in the mining, quarrying, and oil and gas extraction, manufacturing, and finance and insurance sectors were slightly offset by decreases in construction, wholesale trade, and accommodation and food services,” said the federal agency.

“Many of the main drivers of growth in January 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. After remaining relatively flat in the second half of 2022, activity in accommodation and food services was also among the top contributors to growth in January, led by food services and drinking places.”

StatsCan said mining, quarrying and oil and gas extraction expanded 1.1 per cent in January after the sector stepped back 3.3 per cent in December, due in part to unplanned maintenance. An oil spill in Kansas, United States impacted the supply of Canadian crude oil to the Keystone export pipeline in December.

“Oil and gas extraction rose 1.1 per cent in January, led by oil sands extraction (+1.8 per cent) as extraction and exports of crude bitumen increased. Still, unplanned upgrader maintenance constrained production of upgraded synthetic oil, which tempered the overall growth in the oil and gas extraction subsector. Oil and gas extraction (except oil sands) was essentially unchanged in January, as an increase in natural gas production was offset by a decrease in conventional crude oil production, primarily due to lower offshore production in Newfoundland and Labrador and Saskatchewan,” it said.

“Mining and quarrying (excluding oil and gas extraction) rose 1.0 per cent in January, led by a sharp increase in coal mining (+22.5 per cent) as exports, particularly to China, rose. Declines in non-metallic mineral mining and quarrying (-2.0 per cent) and metal ore mining (-0.5 per cent) partially offset increases in the sector.”

Andrew Grantham, an economist with CIBC Economics, said the strong growth in January, plus surprise further advance in February, leaves GDP tracking almost three per cent for first quarter as a whole, which is clearly well above the 0.5 per cent expected by the Bank of Canada.

“However, the fact that inflation has also eased a little quicker than they previously thought suggests that some of the growth we are seeing is related to the unwinding of previous supply constraints, and as such the apparent strength in the economy to start 2023 may not be too concerning for policymakers,” he said.

James Orlando, Senior Economist, TD Economics, said Canadian economic data keep trending higher.

“With today’s print and the flash estimate for February, GDP is likely going to clock in above two per cent (quarterly annualized). This is a big rebound from the 0 per cent growth recorded over the final quarter of 2022. We have been talking about this rebound narrative for quite some time. With employment growth blowing past expectations, alongside massive government income supports, consumers are back to their high spending ways. This has raised the floor for GDP in Canada,” he said.”Canadian government yields are rising this morning, with the Canada two-year up nearly five basis points, narrowing the gap with U.S. Treasuries. This doesn’t mean the BoC (Bank of Canada) will raise rates again, but implies that the BoC may delay cutting in the back half of this year. There is no need for the BoC to hike rates again given the lagged effects of past interest rate rises, but the massive cuts previously priced in markets were too pessimistic. We’d argue that financial markets are now coming into balance, recognizing the current upturn in economic momentum.”

(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)