OTTAWA – The Canadian economy kicked off 2016 by rocketing higher, raising hopes for better-than-expected growth this year.
Real gross domestic product rose 0.6 per cent in the first month of the year, boosted by manufacturing, retail trade and the oil and gas sector, Statistics Canada reported Thursday.
The result was twice the 0.3 per cent that economists had expected for the month, according to Thomson Reuters, and triple the 0.2 per cent increase in December.
Bank of Montreal chief economist Doug Porter said the strong report changes the tone of the debate on the Canadian near-term outlook.
“I think the manufacturing sector and exports more broadly are finally kicking into gear in a big way, both because of the comeback in the auto sector in particular, but also thanks to the lower Canadian dollar,” he said.
“Even above and beyond that though, we had pleasant surprises almost across the board in the Canadian economy and there is no single factor that I can point to.”
Porter said that in many ways it was the mirror image of what was happening in the economy a year ago.
“Now suddenly nothing can go wrong for it, which is quite an amazing turn of events given the fact that oil prices hit multi-year lows in January and financial markets were struggling mightily because of the concerns about weak growth,” Porter said.
Porter said that growth of two per cent this year looks doable with the federal budget stimulus announced last week.
In its most recent forecast, the Bank of Canada predicted the economy would grow by 1.4 per cent this year, but that did not account for the new spending in the budget, which forecasts a deficit this year of nearly $30 billion.
The central bank is expected to update its forecast when it releases its new monetary policy report on April 13.
TD Bank economist Brian DePratto said TD doesn’t expect the central bank to raise interest rates until well into 2017.
“With the Canadian growth rotation just getting underway and long-term inflationary pressures appearing muted, the Bank of Canada will likely want to keep its foot on the accelerator for as long as possible to support the rotation process,” DePratto wrote in a note.
Statistics Canada said the output of goods-producing industries increased 1.2 per cent in January as the manufacturing sector grew by 1.9 per cent.
Mining, quarrying, and oil and gas extraction rose 0.9 per cent. Increases in oil and gas extraction as well as support activities for the mining and energy sector more than offset a drop in mining and quarrying.
Service-producing industries rose 0.4 per cent as retail trade grew by 1.5 per cent, helping offset a 0.2 per cent drop in wholesale trade.
The finance and insurance sector grew by 0.6 per cent in January, while the public sector increased by 0.2 per cent.