Canada’s economy shows higher activity after Omicron restrictions are lifted

Last month, the national economy continued its path of monthly increases, intensifying suggestions that the Bank of Canada will start one of its most aggressive tightening cycles in order to restrain a 30-years record high inflation.

According to Statistics Canada, gross domestic product was up for the ninth consecutive month in February, reporting a 0.8% gain and following a 0.2% increase seen in January.

Such results are one more evidence that Canada’s economy was unexpectedly resilient at the beginning of 2022 amid COVID-19 restrictions aimed at restraining the spread of the omicron variant, and even showed a strong activity after the lockdowns were cancelled last month.

The economy is moving towards an annualized pace of more than 4% in Q1 – it’s twice more than the BoC had been expecting in January. The central bank officials said Canada was already at full capacity at the end of 2021, with an annualized 6.7% growth reported in Q4.

“This year, a certain slowdown in activity was expected due to the pandemic restrictions, but, unlike the previous waves, this one was different,” – Benjamin Reitzes from BMO Capital Markets noted.

The BoC started a tightening cycle with a 0.25% increase earlier this month trying to control the inflation.

Now, certain economists believe that such a significant growth (combined with strong consumption, a hot jobs market and growing price pressures) will make the Bank act even more actively. Bank of America and Citigroup are expecting a 0.50% rise at each of the central bank’s next three decisions.

Last month, the main drivers of output gains were the manufacturing sector, oil and gas extraction, accommodation and food services, and construction. While the omicron kept affecting services-producing industries in January, 9 out of 20 industrial sectors showed gains in the first month of the year.

The central bank’s next rate meeting is scheduled for April 13.