Canada: The Economy Shrugs Off High Rates to Start 2023

Real GDP advanced by 0.5% in January, besting consensus expectations (0.4%) and coming in much better than Statistics Canada’s flash estimate (0.3%).

Services-producing sectors led the charge forward in January. A 0.6% increase in the month was driven by a surge in accommodation and food services activity (4.0%) and a rebound in transportation and warehousing (1.9%) after rail traffic ground to a halt due to inclement weather in December.

That said, goods-producing sectors were no slouch to start the year, moving 0.4% higher. This was on the back of a 1.1% bump in mining and oil and gas extraction that unwound the weakness in December due to unplanned maintenance.

Statistics Canada’s flash estimate for real GDP is for another solid advance of 0.3% in February. Resource extraction looks as though it may top the leader board again, along with manufacturing and finance and insurance.

Today’s outsized move in January real GDP and continued momentum through February leaves little room to equivocate. The Canadian economy started the year on a very strong footing.

But with the recent global banking sector volatility and inflation coming in below expectations in February, there are plenty of good reasons for the Bank to stay on the sidelines for the foreseeable future. However, the data suggest the central bank should reiterate its hawkish-leaning forward guidance.