Canada’s economy began 2019 with its largest output gain in eight months, an unexpected result that will ease worries the expansion has come to a halt.
Gross domestic product grew by 0.3 per cent in January, faster than the 0.1 per cent forecast in a Bloomberg survey of economists. The gains were broad-based outside of the energy sector, and included the biggest one-month increase in construction activity in more than five years. Manufacturing output also surged.
The numbers paint a much less bleak picture for an economy that came to a near halt at the end of last year, with January GDP now putting growth on pace for a stronger first quarter than most economists are anticipating. The gains should also bolster confidence among officials at the Bank of Canada that growth will bounce back.
“Overall, a better than expected start to Q1 after a near zero growth rate in Q4, and reason enough for the Bank of Canada to hang on to its hopes that the growth stall late last year will prove temporary,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a note to investors.
Financial markets are betting the central bank is likely to cut interest rates because of the weak run of data until now. Canada’s economy stalled in the fourth quarter, including contractions of 0.1 per cent in each of the final two months of 2018. Economists had been forecasting equally sluggish growth this quarter.
The Canadian dollar jumped on the report, gaining 0.6 per cent to 74.87 US cents at 8:39 a.m. in Toronto trading. Yields on Canadian two-year bonds rose 5 basis points to 1.54 per cent.
The gains would have even been larger had the Alberta government not imposed mandatory oil production cuts in January to ease pipeline bottlenecks that have depressed prices for heavy Canadian crude. Oilsands extraction was down 4.1 per cent in January.
Statistics Canada saw 18 of 20 industrial sectors posting increases in January. GDP grew by 1.6 per cent in January from a year earlier, the agency said.
Other Highlights
- Goods-producing industries recorded a 0.6 per cent gain in January, the biggest one-month increase since February 2018.
- Services were up 0.2 per cent, driven by wholesale sales
- Construction advanced 1.9 per cent, the first gain in eight months and the largest advance since July 2013. That includes a 3.1 per cent increase in residential building
- Output by manufacturers rose 1.5 per cent, the biggest increase since November 2017 and more than offsetting two straight monthly declines
- The real estate agent and broker subcategory increased 4.1 per cent after four months of declines. Gains in this sector should reverse in February, more current data suggest
With assistance from Erik Hertzberg
Bloomberg.com
