It's a Very Happy Birthday for the Economy as Canada Turns 150
(Bloomberg) -- Canada’s economy is looking vigorous as the nation celebrates a century and half.
Reports on the eve of the national day showed solid economic growth and business confidence that confirm the country has bid farewell to its oil crisis.
Statistics Canada released April gross domestic product data on Friday that showed the economy expanded at a 0.2 percent monthly pace, and grew by 3.3 percent over the past 12 months. In a separate report, the Bank of Canada released a survey of business leaders that showed the strongest outlook since 2011.
The GDP figure puts the country on pace for annualized growth of between 2.5 percent and 3 percent in the second quarter, a strong follow-up to a 3.7 percent expansion in the first quarter that was by far the fastest among Group of Seven countries. The business survey, meanwhile, will give Bank of Canada Governor Stephen Poloz more confidence in the sustainability of the expansion as he considers a rate increase.
“Few economies in the world can hold a torch to Canada’s over the past four quarters so raise a toast to the Canadian economy’s global leadership this weekend,” Derek Holt, head of capital markets economics at Bank of Nova Scotia, said in a note to investors.
It had been a tough ride, as the nation suffered through a once-in-a-generation collapse in commodity prices and one of its worst-ever economic performances short of a recession. But the country’s rebound since the second half of last year has been stellar, including the creation of more than 300,000 new jobs and a pace of growth seldom seen since the 2008-2009 recession.
Statistics Canada said Friday that GDP grew for a sixth consecutive month in April, with gains broadly based among a majority of industries. The year-over-year reading is the fastest since June 2014, before the oil shock hit.
The Bank of Canada survey of business managers found executives expect growth will likely be sustained. The central bank’s quarterly Business Outlook Survey also included the highest score on hiring intentions on record.
The improving economy looks like it will allow the Bank of Canada to finally begin tightening policy for the first time since 2010. Poloz and his deputies have begun to favor raising the 0.5 percent benchmark interest rate, citing broadening gains. The data and more hawkish language is prompting a race by economists and investors to bring forward their expectations for an increase at the central bank’s rate decision July 12. Swaps trading now suggests an 84 percent chance of an increase, up from about 70 percent earlier Friday. Odds are also growing for a second round of tightening later in the year.
“It validates everything,” said Jimmy Jean, a strategist in the fixed-income group at Desjardins Capital Markets in Montreal. “The question is not only do they go in July but when is the next one?”
Jean, along with Mark Chandler at Royal Bank of Canada, switched their forecasts to a rate increase in July after the reports. Bank of Montreal and Bank of Nova Scotia did the same earlier this week, and in total nine of 16 economists surveyed by Bloomberg by 2 p.m. on Friday predict a tightening next month.
Canada’s shift toward tightening is being mirrored in other major economies. Poloz was on stage at a European Central Bank panel this week where his predecessor, Bank of England Governor Mark Carney, suggested the time is nearing for an increase. Their U.S. counterpart, Janet Yellen, said separately this week her policy tightening is on track.
Yet, for Canada all the positivity represents a big shift, after the lingering gloom that led Poloz to cut rates twice in 2015 to ward off damage from slumping energy investment. Even as recently as earlier this year, he was warning about the need for more stimulus -- not less.
The upswing comes as Canada celebrates the 150th anniversary on Saturday of the confederation of four provinces that grew into the modern nation.
“It’s happy birthday news for the Canadian economy,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said.