March 2023 GDP: A very healthy start to the year with a gain 0.5% in January

Canada’s economy got off to a healthy start for 2023 with a 0.5% GDP gain in January, following a slight contraction in December. Advanced estimates for February show another increase (0.3%), which puts real GDP growth on pace for a surprisingly strong annualized 2.9% in Q1. So, it looks like the recession will have to wait for another quarter.

While this pace of economic growth is well ahead of the Bank of Canada’s previous forecast of 0.5%, they are unlikely to revise their policy pause just yet. But this does increase the odds that the Bank’s next interest rate move could be a hike, not a cut, as financial markets have been expecting.

Mahmoud Khairy, Chief Economist, Canadian Chamber of Commerce.

KEY TAKEAWAYS

• It’s a  good start of the year for Canada’s real gross domestic product (GDP) as it rose 0.5% in January, after a mild contraction in December, exceeding the advanced estimate of 0.3%.
• There were broad-based gains in both goods (0.4%) and services sectors (0.6%) and across most industries. Arts & entertainment, accommodation & food services, followed by transport & warehousing were the biggest gainers in January.
• Wholesale activity rebounded in January to record 1.8%. The imports of industrial machinery, equipment and parts drove the gains related to construction of a new liquified natural gas terminal in B.C.
• Mining, quarry and oil and gas extraction has rose by 1.1% in January, led by oil sands extraction. Mining increased by 1.0% due a sharp increase in coal exports to China.
• The manufacturing sector grew by 0.5% in January, led by durable goods (1.2%) for the third consecutive month, especially for passenger cars as the easing of supply chain challenges and increased production days contributed to higher production.
• The construction sector has its largest gain since March 2022 increasing by 0.7%, with increases in all subsectors, aided by unseasonably warm weather on the month.
• Transportation and warehousing started to recover by 1.9% in January after a bad weather caused the sector to contract in December. Rail transportation led the way (12%) with largest growth rate since May 2014.
• Accommodation and food services expanded by 4.0% as there was increased activity at restaurants.
• Arts, entertainment, and recreation gained 2.1% with increased attendance for hockey games (both NHL and Canada hosting the World Juniors).
• The public sector expanded for the 12^th consecutive month by 0.3% in January reflecting increase in all subcomponents.
• Advanced estimates for February show 0.3% growth. Taken together, these estimates put real GDP growth on an annualized pace of 2.9% for 2023Q1, which is running well ahead the Bank of Canada’s forecast (0.5%) and budget forecast of -0.3%.

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