OTTAWA (Reuters) -The Canadian economy likely gathered momentum in February, growing for a ninth consecutive month after a January gain, data from Statistics Canada showed on Thursday, prompting economists to revise up first quarter projections.
Real gross domestic product probably grew 0.8% in February, led by increases in manufacturing and resources, Statscan said in a flash estimate. The economy expanded 0.2% in January – matching expectations – despite increased pandemic restrictions.
The robust start to the year sets the stage for first quarter GDP to come in well ahead of the Bank of Canada’s current forecast of 2.0%, said economists.
“Heading into the year, some slowdown in activity was expected due to the pandemic restrictions, but, unlike in past waves, that wasn’t the case,” said Benjamin Reitzes, Canadian rates and macro strategist at BMO Capital Market Economics, in a note.
“Accordingly, it looks like Q1 GDP growth will clock in at around a 4% annualized rate.”
With February’s gain, Canada’s economy is now 1.2% above pre-pandemic levels, Statscan said. That may add to pressure on the Bank of Canada to move aggressively on rate hikes when it meets in mid-April.
“The Bank may follow through with the recent pledge … that it will be forceful in combating inflation, potentially by hiking interest rates by 50 bp,” said Stephen Brown, senior Canada economist at Capital Economics, in a note.
Inflation has surged to 5.7% and money markets see a 50% chance of a 50-basis point hike, to 1.0%, on April 13.[BOCWATCH]
In January, activity among goods-producing industries jumped, led by a strong rebound in construction and a surge in demand for utilities.
Services were flat as the spread of the Omicron coronavirus variant led to more restrictions, though the February flash estimate suggested a partial reversal for accommodation and food services.
Statistics Canada also revised upwards the December GDP growth rate to 0.1% from flat.
The Canadian dollar was trading 0.3% lower at 1.2517 to the greenback, or 79.89 U.S. cents, as oil fell and the U.S. dollar jumped on waning hopes of progress at Russia-Ukraine peace talks.
(Reporting by Julie Gordon in Ottawa, additional reporting by Dale Smith in Ottawa and Fergal Smith in Toronto;Editing by Bernadette Baum and John Stonestreet)