Canada’s GDP outperforms Jan growth forecast, likely grew 0.4% in Feb

By Thomson Reuters Mar 28, 2024 | 7:55 AM

By Promit Mukherjee and Ismail Shakil

OTTAWA (Reuters) – Canada’s gross domestic product in January increased 0.6%, the fastest growth rate in a year and higher than forecasts, and the economy likely expanded 0.4% in February, data showed on Thursday.

Analysts polled by Reuters had forecast a GDP growth of 0.4% in the month. December GDP was revised to a 0.1% contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7% growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

Thursday’s data shows the Canadian economy started 2024 strongly after growth stalled in the second half of last year; GDP was flat or negative on a monthly basis in four out of the last six months of 2023.

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the bank has said it does not want to stay on hold longer than needed.

Money markets trimmed their bets for a June rate cut to 65% from just over 70% after the GDP numbers were released. They widely expect the BoC to hold its key overnight rate at the same level in April.

The Canadian dollar pared losses after the numbers, with the loonie weaker by 0.09% to 1.3579 against the greenback at 12:40 GMT. The two-year government bond yields also rose by 4.6 basis points to 4.188%.

The central bank has maintained its key policy rate at a 22-year high of 5% since July, but BoC’s Governing Council in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5% in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in January was broad-based, with 18 out of 20 sectors expanding output in the month, Statscan said. Real estate and rental and leasing grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January, it said.

Overall, the services-producing industries grew 0.7%, while the goods-producing expanded 0.2%.

In a preliminary estimate for February, Statscan said GDP was likely up 0.4%, helped by mining, quarrying, and oil and gas extraction, manufacturing, and finance and insurance industries.

(Additional reporting by Dale Smith; Editing by Nick Zieminski)