Canada’s Recovery Gains Steam, With Growth Tracking Above 5%

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Canada’s economy continued showing surprising strength at the start of the year despite a second wave of closures that forced many businesses to shut their doors again.

Gross domestic product grew 0.7% in January, Statistics Canada reported Wednesday in Ottawa. A preliminary estimate for February shows the country kept the momentum going with output expanding 0.5%, the 10th-straight monthly gain in GDP.

The numbers highlight how well the nation’s economy handled the latest wave of lockdowns, resilience that’s fueling expectations for a strong rebound in 2021 after the nation suffered its sharpest downturn in the post-World War II era.

“This is yet another pleasant upside surprise,” Doug Porter, chief economist at the Bank of Montreal, said in a report to investors.

Canada’s Recovery Gains Steam, With Growth Tracking Above 5%

Economists were anticipating a 0.5% gain in January and the better-than-expected numbers for the first two months of the year suggest first-quarter growth will be better than the Bank of Canada forecast. Growth for the quarter is tracking at more than 5% on an annualized basis even if the expansion stalls in March.

The central bank, which had originally expected a contraction in the first quarter, has begun signaling it will slow the pace of its purchases of Canadian government bonds. The bank’s first foray into what’s known as quantitative easing has been a key tool policy makers have used to keep market interest rates low since the pandemic hit a year ago.

“With the economy doing much better than policy makers expected, it seems likely that the Bank of Canada will cut the pace of its asset purchases,” Stephen Brown, an economist at Capital Economics, said in a report to investors.

To be sure, the winter lockdowns are having some impact. Overall, despite the robust start to the year, growth is still expected to slow in the first three months of this year after a 10% annualized gain in the fourth quarter of 2020.

In January, wholesalers led gains, with activity for the sector up 3.9% for the month. Manufacturing was another strong sector, posting a 1.9% expansion in January, led by growth in fabricated metal and machinery. The pandemic-exposed sectors like retail and restaurants all posted declines in January amid shut downs, but Statistics Canada said retail rebounded in February.

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