As you head into the Canada 150 long weekend, here’s some good news: the Canadian economy had another month of solid growth in April, building on strength seen in the first quarter.
This also supports expectations that the Bank of Canada will soon begin increasing interest rates. Statistics Canada said Friday the economy grew 0.2% in April compared with an increase of 0.5% in March.
The result matched the expectations of economists, according to Thomson Reuters.
“While the April GDP report is no big surprise, it maintains a now lengthy run of Canadian data matching or topping expectations, and forecasts for 2017 growth just keep climbing,” Bank of Montreal chief economist Doug Porter wrote in a report.
“In a word, there’s nothing here to dissuade the Bank of Canada from looking to start removing some of the stimulus, likely starting just next month.”
The Bank of Canada’s key interest rate target sits at 0.5%. An increase in the rate will likely prompt Canada’s big banks to raise their prime rates, a move that will drive up the costs of variable-rate mortgages and other borrowing tied to the benchmark rate.
Expectations that the Bank of Canada could raise rates sooner rather than later have ramped up in recent days following comments by Stephen Poloz that interest rate cuts made in 2015 have done their job. Poloz noted that the economy enjoyed surprisingly strong growth in the first quarter.
Statistics Canada said the growth in April came as service-producing industries increased 0.3%, helped by widespread gains.
The arts, entertainment and recreation sector climbed 2.8% for the month, helped by the five Canadian teams in the first round of the NHL playoffs and strong professional basketball and baseball attendance.
Meanwhile, Statistics Canada says goods-producing industries were essentially unchanged for the month as an improvement by mining, quarrying, and oil and gas extraction was largely offset by a drop in manufacturing.
Mining, quarrying, and oil and gas extraction gained 1.2% despite a 0.8% drop in oil and gas extraction due to the impact of the Syncrude Mildred Lake oilsands upgrader fire in March.
The manufacturing sector fell 0.9% in April.
In a research note, RBC economist Josh Nye says Canada’s momentum in Q2 so far “fits with our forecast for 2.7% growth in the quarter. […] There was also further evidence of recovery in the energy sector, supporting the Bank [of Canada]’s contention that adjustment to lower oil prices is largely complete.
He adds, “April’s GDP, if matched by an upbeat Business Outlook Survey later this morning, should reinforce market expectations.”
In a separate note, TD Bank’s Brian DePratto says the economy kicked the second quarter off on a decent footing, posting its sixth straight monthly expansion. And, “With Canada Day tomorrow, it’s perhaps worth noting that at least part of the gain can be attributed to five Canadian teams making the NHL playoffs this year — a welcome departure from the 2016 performance.
“Beyond the impact of hockey, however, was a still solid economy that continues to see growth across a wide swath of industries, and which looks set to meet our expectations of 2.9% growth (q/q SAAR) for Q2.”
While TD still calls for a BoC rate hike in October, DePratto adds, “[..] a July hike can easily be justified given the forward-looking nature of monetary policy,” especially if other measures are positive.
BoC business survey
It seems Nye and Depratto won’t be disappointed: improving business sentiment has hit a high not seen since 2011, according to the Bank of Canada’s latest business survey.
The Bank of Canada says its new survey of about 100 Canadian companies provides evidence of a generalized improvement in business sentiment. The survey found business hiring intentions for the next 12 months had accelerated since April to reach its highest level on record.
The poll also shows companies expect sales growth to continue improving over the coming year, while business investment intentions for the next 12 months also remain elevated.
Overall, the Bank says the positive business outlook has been spreading across industries and regions. Canada has been enjoying a stronger-than-expected run of economic data since the start of the year in key areas such as growth, trade and the labour market.