EconoFACTS

March 31, 2023 | 09:07

Surprise, Surprise

Economist

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience ana... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience ana... (Read more)

Canadian real GDP bolted out of the gates in 2023 with a crackling 0.5% rise in January, a tick above our call and two ticks north of the already solid initial estimate of +0.3%. In part, the strong gain (which was actually 0.543%) was thanks to a freakishly mild winter month. However, the early read on February suggests that the growth spree was not entirely a weather-related fluke, as StatCan's flash estimate points to another solid advance of 0.3%. That is, in fact, the bigger surprise here, which will prompt some sizeable upward revisions to Q1 GDP estimates. The Bank of Canada had pencilled in a 0.5% annualized rise for Q1 in their January MPR, and we had since lifted our call to 1.0%—both look well light of reality, with today's large gains pointing to growth of around 2.5%.

January's large gain was not entirely a shock, as a myriad of indicators flashed some serious strength, perhaps most notably the blow-out 150,000 surge in jobs. While mild weather no doubt played a role, the breadth of the gains was impressive. Construction was up 0.7%, while mining and oil &gas rose 1.1%, and manufacturing 0.5%, leading a 0.4% advance for the goods-producing sector. (Utilities are the natural loser when the weather is mild, and they fell 1.8%). Services were even stronger at +0.6%, led especially by hotels & restaurants (+4.0%), and arts, entertainment & recreation (+2.1%). In an oh-so-Canadian twist, the latter was helped by "more home games hosted by ... the Toronto Maple Leafs and Montreal Canadiens." Not kidding.

The bigger surprise was that the flash estimate for February GDP was +0.3%, driven by mining/oil/gas, manufacturing & finance, with weakness in construction, wholesale & hospitality. Given the monthly data we've seen so far for February, there's probably some moderate downside risk to the flash. But the bigger picture is that there was precisely zero giveback to the January jump, and the economy seems to be holding up remarkably well in early 2023.

Bottom Line: There were many indications that the economy got off to a solid start in 2023, but today's double- barrelled blast of strength is well above even the most optimistic views. Even if growth stalls in March, it now looks like Q1 will post growth of 2.5%, up from a flat read in Q4. While we continue to look for a notable cooldown in the next two quarters, we are bumping up our GDP growth estimate for all of 2023 by three ticks to 1.0%. Suffice it to say that if the strength seen in the opening months of the year persists, the BoC is going to find itself in a tough spot.

Table 1 - Canada — Monthly Real GDP

(month/month % change)

Source: BMO Economics, Haver Analytics