Canada Emerges From Slump With Best GDP Gain in Eight Months

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Canada’s economy began 2019 with its largest output gain in eight months, an unexpected result that will ease worries the expansion has come to a halt.

Gross domestic product grew by 0.3 percent in January, faster than the 0.1 percent forecast in a Bloomberg survey of economists. The gains were broad-based outside of the energy sector, and included the biggest one-month increase in construction activity in more than five years. Manufacturing output also surged.

The numbers paint a much less bleak picture for an economy that came to a near halt at the end of last year, with January GDP now putting growth on pace for a stronger first quarter than most economists are anticipating. The gains should also bolster confidence among officials at the Bank of Canada that growth will bounce back.

“Overall, a better than expected start to Q1 after a near zero growth rate in Q4, and reason enough for the Bank of Canada to hang on to its hopes that the growth stall late last year will prove temporary,” Avery Shenfeld, chief economist at CIBC Capital Markets, said in a note to investors.

Financial markets are betting the central bank is likely to cut interest rates because of the weak run of data until now. Canada’s economy stalled in the fourth quarter, including contractions of 0.1 percent in each of the final two months of 2018. Economists had been forecasting equally sluggish growth this quarter.

The Canadian dollar jumped on the report, gaining 0.6 percent to C$1.3355 per U.S. dollar at 8:39 a.m. in Toronto trading. Yields on Canadian two-year bonds rose 5 basis points to 1.54 percent.

The gains would have even been larger had the Alberta government not imposed mandatory oil production cuts in January to ease pipeline bottlenecks that have depressed prices for heavy Canadian crude. Oil-sands extraction was down 4.1 percent in January.

Statistics Canada saw 18 of 20 industrial sectors posting increases in January. GDP grew by 1.6 percent in January from a year earlier, the agency said.

Other Highlights

• Goods-producing industries recorded a 0.6 percent gain in January, the biggest one-month increase since February 2018. Services were up 0.2 percent, driven by wholesale sales
• Construction advanced 1.9 percent, the first gain in eight months and the largest advance since July 2013. That includes a 3.1 percent increase in residential building
• Output by manufacturers rose 1.5 percent, the biggest increase since November 2017 and more than offsetting two straight monthly declines
• The real estate agent and broker subcategory increased 4.1 percent after four months of declines. Gains in this sector should reverse in February, more current data suggest

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Stephen Wicary

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