Full steam ahead for the Canadian economy in February

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The Canadian economy jumped 1.1% month/month (m/m) in February, beating Statistics Canada’s flash estimate of 0.8%. The March flash estimate also points to a strong gain of 0.5% m/m

The increase in activity in February was broad-based, with output rising in 16 of 20 industries. The goods-producing sector grew by 1.5% m/m, while the services sector grew by 0.9% m/m.

The reopening of the Omicron wave caused the accommodation and food services sector to rebound 15.1% over the month. Food services and drinking places and accommodation services increased by 17.6% and 8.8% m/m respectively.

Construction jumped again (+2.7% m/m) this month, with residential building construction rising 3.7%. Transportation and warehousing increased by 3.1% over the month, led by a 9.1% increase in rail transport and a 7.7% increase in air transport.

Key implications

All aboard Canada’s bandwagon. With all the talk about how high inflation and rising interest rates will slow growth, today’s GDP report reinforces the view that the momentum of the Canadian economy is unwavering. .

The February print update and March strong flash estimate point to 5.6% annualized growth for the first quarter. Compared to our neighbor to the south and our global peers, Canada is clearly outperforming.

The Bank of Canada will no longer need to convince that another 50 basis point hike is necessary at its June 1 meeting. This sent Canadian 2-year and 10-year yields jumping this morning to 2.65% and 2.89%. As Canadian yields narrow the gap to US Treasuries, the loonie has appreciated more than half a percent. Go Canada!

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