The Canadian economy is growing faster than expected, how will the Bank of Canada respond?

Canada’s economy grew more than expected in January, expanding by 0.6%, highlighting its continued and surprising resilience.

New preliminary data released by Statistics Canada also showed that GDP likely increased 0.4% in February, meaning the first two months of the year marked the economy’s strongest expansion since 2022.

Economists had expected January growth to be 0.4%, but it was exceeded thanks in part to the end of strikes in Quebec’s public sector and the resulting recovery in education services, according to StatsCan.

BMO chief economist Doug Porter said GDP is “in a much more robust position than many expected,” with the economy appearing to be supported by strong tailwinds in the early months of 2024.

“Our forecast for a June rate cut remains dependent on upcoming inflation reports,” he said, “but if this pattern of economic activity continues into the second quarter, the Bank of Canada will have much less reason to rush to cut rates in the near future.” time.”

RBC economist Claire Fan said that while the economy’s performance was significantly stronger than expected at the start of the year, early estimates should be taken “with a grain of salt” as they could be revised down significantly later.

We read the news headlines, but how seriously should we take these initial numbers?

Here’s a great example: In January, Canada’s December GDP was announced to grow by 0.3%. Wow, great news, victory reports and all that. Wait a minute. In February, December GDP was revised to “flat” and today December GDP was again revised to “contract” by 0.1%. But as policymakers today make triumphant statements about a likely February positive rate of 0.4%, they no longer pay attention to the revised December figure.

With unemployment recently rising to 5.8%, Claire Fan noted that labor market conditions continue to deteriorate – and that RBC still expects the central bank to start cutting interest rates in June.