Growth pushes recession fears aside
Manufacturing rebound heralded as evidence of the economy’s resiliency
Julian Beltrame – The Canadian Press
The Canadian economy is showing remarkable resiliency in the face of a sharp U.S. slowdown, as Canada’s gross domestic product rebounded strongly in January after the previous month’s retreat.
January’s 0.6% growth to start the year was the biggest one-month increase for the economy since April 2005 and all but reversed December’s alarming 0.7% contraction.
“The snap-back in January shows that most of the steep drop in the prior month was temporary and clearly exaggerated the weakness in the economy,” said BMO deputy chief economist Douglas Porter.
The rebound, slightly above economists’ consensus of 0.5%, was led by a surprising source – manufacturing, which increased 1.7% after a 3.4% fall-off in December.
The troubled auto sector also bounced back from a massive 27% plunge in December to record growth of 12% in the first month of the year, and Statistics Canada noted that preliminary data for February suggested continued auto-industry recovery.
Meanwhile, sectors such as retail sales and wholesale trade that have supported economic growth over the past year recorded solid advances of 1.2% and 2.8%, respectively, in January.
But the Canadian economy is not out of the woods yet, cautioned Paul Gauthier, an economist with TD Bank, noting that the U.S. economy is likely in a recession and there will be little upside for Canadian exports in the near future.
Gauthier added that domestic demand is expected to slow from its breakneck pace of the past quarter.
“While the wheels aren’t expected to come off the Canadian economy because many fundamentals – most important employment – should provide enough support to avert a national recession, the most likely scenario is that real GDP will barely grow in the first half of this year,” he said.
The muted celebration was reflected in the Canadian dollar, which actually dropped on the news and settled at 97.42 cents (U.S.), off nearly half a cent.
Scotiabank currency analyst Camilla Sutton said factors other than the GDP report were at play in the trading of the loonie, including renewed fears of a global slowdown.
“It’s still very close to where it closed on Friday – near parity. Also, today is quarter-end so there could be some flows in the market pushing things around,” Sutton added.
Given the modest expectation for the economy over the first half, many economists are holding to their views that the Bank of Canada still needs to cut its key short-term lending rate by 50 basis points on April 22.
————————————————————————————————————
