Canada’s GDP grew by a larger-than-expected 0.7% in January with strength in construction, manufacturing, and wholesale offsetting weakness in retail sales as pandemic restrictions constrained bricks-and-mortar shopping in that month.
The result was considerably stronger than the 0.5% expected by economists, and it enabled the Canadian dollar to extend modestly its earlier gains against the broadly weaker US dollar.
That marked the ninth consecutive monthly increase as the economy continued to rebound from the steepest drops on record in Canadian economic activity observed in March and April 2020, StatsCan said.
Total economic activity was about 3% below the February level before the COVID-19 pandemic, it said.
The extraordinary strength in Canada’s debt-driven housing market was in evidence in several areas of the GDP report.
StatsCan said construction was up 1.4% in January, the third increase in four months, as residential construction grew 3.1%, with growth in all types of residential construction increasing. Repair construction increased 1.4%, while non-residential construction edged up 0.1%.
Legal services, which derive in large part from real estate transactions, grew 1.1% in January, and finance and insurance increased 0.8% in January, StatsCan said. Banks and other depository credit intermediation (+1.0%) led the growth, benefiting from a 7.1% year-over-year increase in households’ overall mortgage debt, it said.
In the battered retail sector, clothing and clothing accessories stores (-17.0%) and sporting goods, hobby, book and music stores (-14.1%) saw a second consecutive month of double-digit declines, while activity at furniture and home furnishings stores also fell 12.8% in January.
StatsCan’s “flash” estimate for GDP put February at a roughly 0.5% increase.
Retail trade, construction, and real estate and rental and leasing all contributed to the growth, while manufacturing offset some of the increase, it said.
The January GDP data likely won’t have much effect on expectations that the Bank of Canada will keep its policy interest rate at 0.25% well into next year, but its strength may contribute, at the margins, to expectations the Bank could begin to curb its buying of government debt in the next few months.
Market Strategist and Content Editor
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