The Canadian economy surged ahead 1.1% month/month (m/m) in February, beating Statistics Canada’s flash estimate of 0.8%. The flash estimate for March also points to a strong gain of 0.5% m/m
February’s increase in activity was broad, with output expanding in 16 of 20 industries. The goods-producing sector rose 1.5% m/m, while the service-producing sector rose 0.9% m/m.
The reopening from the Omicron wave caused the accommodation and food services sector to rebound 15.1% on the month. Food services and drinking places and accommodation services were up 17.6% and 8.8% m/m, respectively.
Construction saw another jump (2.7% m/m) this month, with residential building construction rising 3.7%. Transportation and warehousing climbed by 3.1% on the month, led by a 9.1% rise in rail and a 7.7% rise in air transport.
Key Implications
All aboard the Canada bandwagon. With all the talk of how high inflation and rising interest rates will slow growth, today’s GDP report reinforces the view that the momentum in Canada’s economy is unrelenting.
The upgrade to the February print and the strong flash estimate for March point to annualized growth of 5.6% for Q1. Compared to our neighbor to the south and our global peers, Canada is clearly outperforming.
The Bank of Canada won’t need anymore convincing that another 50 basis point hike is needed at its meeting on June 1st. This has the Canada 2-year and 10-year yields jumping this morning, reaching 2.65% and 2.89%. With Canadian yields narrowing the gap relative to U.S. Treasuries, the loonie has appreciated over half a percent. Go Canada!
