HomeContributorsFundamental AnalysisCanadian February GDP Rebounds More than Expected

Canadian February GDP Rebounds More than Expected

Highlights:

  • Canadian February GDP rose 0.4% in the month which was stronger than the 0.3% expected going into the report and more than reversed the 0.1% drop in January.
  • The gain was led by a 3.0% jump in oil and gas extraction with manufacturing up 1.0%.
  • Output of services rose a more modest 0.1% though this was up from flat output in January.

Our Take:

The average level of activity in February and January is consistent with annualized Q1 GDP growth of 1.8% which is in line with the Bank of Canada’s recently upwardly revised view of long-run average or potential growth rate of the Canadian economy. Though this pace of growth is as desired given an economy at capacity, the current stance of monetary policy remains highly stimulative and more in line with trying to boost growth. Thus, as the central bank stated in its most recent policy statement, “higher interest rates will be warranted over time” though quickly adding the caveat that “some policy accommodation will still be needed to keep inflation on target.” In other words the current overnight rate of 1.25% is likely too stimulative and thus needs to be hiked though conditions do not warrant this rate immediately returning to equilibrium levels of between 2.50% to 3.50%. Thus today’s report does not alter our expectation that the Bank of Canada will continue to gradually raise official rates with a further 100 basis points of tightening expected by 2019.

RBC Financial Group
RBC Financial Grouphttp://www.rbc.com/
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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