Humming Factories Drive Surging 2017 Start to Canada Economy

(Bloomberg) -- Canada's economy began 2017 on a tear, building on momentum from the end of last year that is being led by manufacturers and oil producers.

Gross domestic product increased 0.6 percent in January, Statistics Canada said Friday in Ottawa, doubling economist expectations of 0.3 percent growth. From a year earlier, output was up 2.3 percent -- the most since the start of 2015.

The report adds to evidence Canada has emerged from a commodity slump that left its economy near-stagnant. What may be even more of a relief to policy makers are signs of life from the country's manufacturing sector, which is growing at the fastest pace in 15 years.

Friday's release is the latest in a string of recent positive reports that threatens to undermine Bank of Canada Governor Stephen Poloz's assertion the economy has plenty of excess capacity and is in a weaker position than the U.S. He makes his next interest-rate decision and releases a monetary policy report on April 12.

At a press conference earlier this week, Poloz said recent positive data points don't eliminate downside risks to the economy.

The Bank of Canada will “have to acknowledge some of the impressive outperformance we've seen in output and employment recently, even if they will have some reason to highlight geopolitical and trade risks to the growth outlook,” Nick Exarhos, an economist at CIBC World Markets, said in a note to investors.

In a separate note Friday, Bank of Montreal Chief Economist Doug Porter raised his forecasts for growth in the first quarter to 3.5 percent from 2.7 percent.

The Canadian dollar strengthened after the report, gaining 0.3 percent to C$1.3300 per U.S. dollar at 9:09 a.m.

Key Points

• The economy is not only growing but accelerating. GDP has expanded 1.5 percent since October, the biggest three-month gain since 2011.
• Goods producing industries are making a comeback and are now leading growth. They were up 1.1 percent in January and have outgrown services the past three months. Still, the 0.4 percent gain in service-producing industries was the biggest since June 2015.
• Manufacturing output has advanced 4.3 percent since October. That's the biggest three-month gain since 2002 and one of the biggest on record. Durable manufacturing was up 2 percent in January, while production of transportation equipment recorded a 0.6 percent gain.

--With assistance from Erik Hertzberg

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net.

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Stephen Wicary