Canada’s economic recovery keeps gaining pace

The Canadian economy kept showing unexpected strength at the beginning of 2021 even in spite of the second wave of lockdowns which closed many businesses again.

According to Statistics Canada, gross domestic product was up by 0.7% in January, while a preliminary data for February shows a possible 0.5% increase. This will mark the tenth consecutive monthly growth of the GDP.

Such results show how well Canada’s economy coped with the latest wave of lockdowns. This resilience is definitely leading to stronger expectations for a robust rebound this year, following the sharpest downturn since the World War II.

“It’s another pleasant surprise,” – noted Doug Porter, chief economist at the Bank of Montreal.

At the same time, economists were predicting a 0.5% increase in January and the better-than-expected results for the first two months of 2021 suggest that first-quarter gain will also be better than the central bank expected. The annual economic growth for the first quarter may reach 5% even in case the pace slows down in March.

The Bank of Canada, which had initially predicted a decline for the Q1, has started hinting at slowing the pace of its purchases of Canadian government bonds. The BoC’s first intervention into quantitative easing has been a main tool the government have used in order to keep interest rates low since the pandemic started last year.

“As the economy is doing much better than expected, the central bank may reduce the pace of its asset purchases,” – says Stephen Brown, an economist at Capital Economics.

Obviously, the winter lockdowns are having certain influence. Generally, in spite of the strong start of 2021, growth is still expected to slow in Q1, following a 10% annualized gain reported in the fourth quarter of 2020.

The largest increases in January were seen in a wholesale sector, with activity going up by 3.9%. In addition to it, manufacturing reported a 1.9% gain, pushed by growth in fabricated metal and machinery segments. The sectors mostly affected by the pandemic, e.g. retail and restaurants, saw decreases in January, caused by shut downs. However, Statistics Canada says retail sector rebounded in February.