Thu, Jun 08, 2023 @ 08:51 GMT
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Canada’s Economy Bounces Back in January, Points to a Strong February 

The Canadian economy expanded by 0.5% month/month (m/m) in January, above Statistics Canada’s flash estimate of 0.3% m/m. The flash estimate showed a +0.3% m/m change for February.

January’s increase in activity was broad based, with output expanding in 17 of the 20 industries. The service-producing sector rose by 0.6% m/m, while the goods-producing sector rose by 0.4% m/m.

The gain was led by the wholesale trade sector (+1.8% m/m), with StatCan noting strength in “construction and industrial equipment”. Mining, quarrying and oil and gas extraction returned to growth (1.1% m/m) following the Kansas oil spill which negatively impacted the Canadian supply chain for crude.

The service sector’s expansion was led by accommodation and food services, up 4.0% m/m, while arts, entertainment and recreation increased 2.1% m/m. StatCan noted the help from the World Junior hockey tournament and a slew of NHL home games in January.

Key Implications

Canadian economic data keep trending higher. With today’s print and the flash estimate for February, GDP is likely going to clock in above 2% (quarterly annualized). This is a big rebound from the 0% 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.

Canadian government yields are rising this morning, with the Canada 2-year up nearly 5 basis points, narrowing the gap with U.S. Treasuries. This doesn’t mean the BoC 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.

TD Bank Financial Group
TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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