Canada: GDP growth accelerates in January; Preliminary estimate points to a slight slowdown in February
The economy grew 0.7% month-on-month in January, picking up from December’s 0.1% increase, and beating Statistics Canada’s preliminary estimate of 0.5% made back on 2 March. Economic activity shrank 2.3% year-on-year in January, which was softer than December’s 3.0% drop.
In January, growth in the goods-producing industries accelerated, particularly due to a rebound in manufacturing activity and stronger growth in the construction sector. That said, growth in the mining, quarrying, and oil and gas extraction sector eased in January. In terms of service-producing industries, output rebounded in January as a weaker fall in retail trade and a surge in wholesale trade more than offset softer growth in the real estate, and rental and leasing sector.
Moreover, Statistics Canada released a special flash GDP estimate for February to provide a snapshot of the state of the economy. The preliminary figure pointed to a 0.5% increase in activity on a month-on-month seasonally-adjusted basis. Although a detailed breakdown was not released, the flash estimates attributed February’s growth to the retail trade, construction, and real estate and rental and leasing sectors, while weaker manufacturing activity offset some of the increase in GDP for February.
In 2021, the economy is expected to rebound robustly as the impact of Covid-19 and subsequent lockdown measures fades. Moreover, strong fiscal and monetary stimulus, coupled with a recovery in labor market conditions, should propel domestic demand. That said, still-tight lockdown measures due to elevated new Covid-19 cases and, a slow rollout of the vaccine remains key downside risks to the outlook.
Commenting on the short-term outlook Sri Thanabalasingam, a senior economist at TD Economics, noted:
“A faster distribution of vaccines would go a long way to easing the weight of the pandemic on the economy. The pace of the rollout has accelerated in recent weeks, but it must continue to do so in order to allow for a safer reopening of the economy through the spring and summer. Supply chain issues, or vaccine hesitancy, could further complicate the economic recovery.”