Canada Economy on Track to Emerge From Soft Patch on GDP Rebound

(Bloomberg) -- Canada's economy rebounded more than economists forecast in February, a reassuring sign the nation is poised to emerge from a recent soft patch in growth.

Gross domestic product expanded 0.4 percent during the month following a 0.1 percent contraction in January, Statistics Canada reported Tuesday in Ottawa. Economists anticipated a 0.3 percent gain. The gains were due to idled oil and auto production coming back on line.

The numbers showed broad-based increases in key sectors such as manufacturing and signs that rail bottlenecks may be dissipating, boding well for a pick-up in growth for the rest of the year. After a slowdown that began in the second half of last year, most economists are anticipating growth will return to above 2 percent pace in coming months and prompt the central bank to continue with rate increases.

“The Canadian economy hit a pot-hole to begin the year, but February's GDP reading suggests that it was only a temporary bump in the road,” Royce Mendes, an economist at CIBC Capital Markets, said in a note to investors.

Most economists are forecasting the economy grew by less than 2 percent for a third straight quarter to start 2018. The Bank of Canada estimates first-quarter growth of 1.3 percent, before the expansion accelerates to 2.5 percent in the second quarter and 2.0 percent for all of 2018.

The GDP numbers for the first two months suggest there is potential for an upside surprise in the first quarter, with the economy tracking just under an annualized 2 percent pace currently.

Bounce Back

The Canadian economy bounced back nicely after a difficult January. The breadth of increases is encouraging,” National Bank senior economist Krishen Rangasamy wrote in a research note. “First quarter growth is on track to top the Bank of Canada's estimate.”

The Canadian dollar rose on the report, paring earlier losses. It was trading little changed at C$1.2844 per U.S. dollar at 8:48 a.m. in Toronto trading.

Canada's economy slowed down considerably in the second half of last year, and the slump deepened in January as the country suffered through rail disruptions and shutdowns in the oil and auto sectors. But February showed signs of a clear turnaround.

Extraction from the oil sands was up 3 percent as production returned to normal following shutdowns in January. But the gains went beyond oil. Fifteen of 20 industrial sectors recorded higher activity in February and excluding oil, GDP was up 0.3 percent for the month.

There are also signs the worst of the country's rail issues may be over. Rail transportation edged down 0.1 percent, much better than the 3.4 percent decline in January.

Other Highlights

• Manufacturing was up 1 percent, driven higher by autos as production in that sector returned to normal following shutdowns
• Strong home building to start the year helped drive up activity in the construction sector by 0.7 percent
• The real estate sector remains a drag on the economy after tighter mortgage rules were introduced at the start of the year. Activity of real estate agents and brokers fell 7.9 percent in February after a 12.9 percent drop in January
• Goods-producing industries were up 1.2 percent, versus 0.1 percent for services

--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, Greg Quinn

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