OTTAWA (Reuters) – Canada’s economy expanded for a ninth consecutive month in January and most likely grew in February, Statistics Canada said on Wednesday, further evidence that a recovery from the coronavirus pandemic was stronger than expected.
Despite the 0.7% gain in January, overall economic activity that month was still 3% lower than it had been in February 2020, before the pandemic started.
January growth jumped on wholesale trade, manufacturing and oil and gas extraction. Retail trade dipped but should recover in February, when restrictions on businesses were lifted, contributing to a likely 0.5% monthly increase, Statscan said.
Analysts polled by Reuters had predicted that gross domestic product would grow 0.5% from December.
“The resiliency of the economy suggests that first quarter growth will look hotter than our last published forecast,” said Royce Mendes, senior economist at CIBC Capital Markets. The firm is now predicting annualized growth in the quarter of 5%, up from 3%.
The Canadian dollar strengthened to 1.2595 against the U.S. dollar, or 0.7940 U.S. cents, after the data release.
The Bank of Canada, which forecast in January that the economy would shrink in the first quarter on an annualized basis, now says it expects positive growth. It is due to release updated forecasts on April 21.
Stephen Brown, senior Canadian economist at Capital Economics, said first-quarter annualized growth could be close to 5% and predicted it would prompt the Bank of Canada to cut the pace of its asset purchases.
The central bank said last week it was looking at how it could adjust its quantitative easing (QE) program. It is currently buying C$4 billion of bonds per week to support the economy.
In another sign of strength, Canadian producer prices grew 2.6% in February on higher prices for energy and petroleum products, the largest monthly increase since January 1980.
(Additional reporting by Dale Smith in Ottawa and Fergal Smith in Toronto; Editing by Andrew Heavens and Bernadette Baum)