Canadian January GDP rose 0.5% m/m in today's report compared to 0.3% expected. In addition, the advance February estimate was +0.3% in a sign of continued strong growth despite a rapid slowdown in housing and high interest rates.
CIBC notes that the Canadian economy has shown resilience in early 2023, with monthly GDP data indicating a nearly 3% annualized growth in Q1, crushing recession fears. They note that the 0.5% gain in January GDP was driven by increases in mining, oil & gas, transportation & warehousing, and accommodation & food services. The easing of previous supply constraints looks to be a catalyst as it has contributed to growth and also calmed inflation.
Even better news is the stronger growth has demographic tailwinds. CIBC says it should be considered in the context of a surging working-age population, with the Canadian working age population growing at a 2.1% annualized pace, leaving per-capital growth not far ahead of population growth (and thus not necessarily inflationary).
The Bank of Canada was forecasting just 0.5% growth in Q1 forecasts released in January.
"The fact that inflation has also eased a little quicker than they previously thought suggests that much of the growth we are seeing is related to the unwinding of previous supply constraints, and as such the apparent strength in the economy to start 2023 may not be too concerning for policymakers. We still expect the impact of past interest rate hikes to show up in slower growth during the remainder of the year," CIBC writes, adding that the bar for the BOC to leave the sidelines and hike again is very high.
The market is pricing in an 85% chance the BOC leaves rates unchanged at the next meeting on April 12, with the remainder positioned for a cut.