March 31, 2021 | 09:04
Canadian GDP: This Beat Goes On...and On
Canadian real GDP rose a revised and impressive 0.7% in January, above the already surprisingly solid flash estimate of a 0.5% gain. As notable, Stats Can's early estimate of February points to another solid gain of 0.5%. Taken together, and assuming even a moderate rise in March, these results suggest that Q1 is headed for an annualized advance of 5% or better—a long way from the many forecasts that called for an outright decline just a few short months ago, and versus our latest estimate of 3.5%. And that is the key point in today's data; the economy held up much better than expected through the second wave restrictions through the winter. Given that we are now facing yet new restrictions in many regions, the economy's ability to soldier forward through the shutdowns is truly encouraging. Still, even with the recent run of surprisingly sturdy figures, note that February's estimate would still leave GDP down more than 2% from last February's pre-pandemic peak, so there is still wood to chop.
The big January gain was led by across-the-board strength in goods-producing sectors. Essentially, industries that were able to stay open, such as resources, construction and manufacturing, powered ahead and offset pronounced weakness in shut-down industries, such as non-essential retail and restaurants. Recall, employment took a big dip in January (plunging 213,000), mostly due to weakness in these services, which makes the sturdy rise in GDP that much more impressive. Manufacturing also managed to overcome production delays in the auto sector, due to chip shortages. And, a big rebound in wholesale trade more than offset the drop in retail activity, in part due to a shift to on-line spending. The housing market inferno also fired up these results, lifting gains in construction, finance and real estate.
Bottom Line: This is yet another pleasant upside surprise for Canadian monthly GDP, with February suggesting that this beat goes on. Today's high-side result for January will likely lead to another round of upward revisions to Q1 growth estimates. However, this good news arrives just as the third wave builds, along with more inevitable restrictions, which are likely to at least dampen the enthusiasm for Q2 growth. Those two forces will largely balance out, and—assuming robust conditions in the second half of this year—we remain comfortable with our call of 6% GDP growth for all of 2021.