The Canadian economy lowered its shoulder through a surge in COVID-19 cases and plunge of 200,000 jobs in January to eke out a 0.2% monthly gain, Statistics Canada said. Goods-producing industries drove gains in January, the agency said, noting the construction sector grew for the third time in four months and the largest monthly gain in wholesale trade since July 2020.
Residential construction grew 4.3% in January, which Statistics Canada said more than offset the previous two months of contractions and was the largest monthly gain since March 2021. Retail trade increased 2.5% in January, partly offsetting the 2.8% decline in December 2021, as 10 of 12 subsectors were up. An 8.8% gain in building material and garden equipment and supplies along with a 9.2% increase in furniture and home furnishings stores further contributed to growth.
The same couldn’t be said for the services sector that as a whole registered zero growth in January. Accommodation and food services, and the arts, entertainment and recreation sector each saw their largest monthly declines since the first wave of the COVID-19 pandemic in April 2020.
The agency said its initial estimate suggests the real gross domestic product grew 0.8% in February, saying that many of the sectors down in January, rebounded a month later. Statistics Canada will finalize the February figure at the end of April.
CIBC senior economist Andrew Grantham wrote in an analysis that the surprisingly resilient January figure and early estimate for growth in February puts economic growth for the first quarter ahead of what was anticipated at the start of the year. He now expects the economy to grow an annualized rate of four per cent in the first quarter, double the two per cent the central bank forecasted in January in its economic outlook.
But Grantham said growth through the remainder of the year is likely to be slower because of the impact of high inflation on household finances, higher interest rates in response that would slow the boom in the housing market, and potential supply chain issues stemming from Russia’s unprovoked invasion of Ukraine.
“Geopolitical conditions are forcing global trade flows to alter and countries are turning to Canada as a reliable, safe supplier of commodities,” said Tu Nguyen, an economist with the firm RSM Canada. “What that means is that the commodity sectors, such as mining, oil and gas agricultural sectors in Canada are turning around and they are expected to be very strong this year. They have to fill this gap in the global market.”
Nguyen also said businesses like restaurants and bars hard-hit in January should rebound in the coming months as long as the economy stays open and rising costs don’t force price increases that turn away customers.
Higher costs are weighing on small and medium-sized businesses that the Canadian Federation of Independent Business warned could slow their recovery and return to pre-pandemic sales levels. The association’s latest survey of its members noted worries about fuel and energy costs, despite results suggesting that their short-term outlook was the most optimistic since the start of the pandemic.
“It’s good to see small business owners express optimism for the future after the last two years of the pandemic,” Andreea Bourgeois, the association’s director of economics, said in a statement. “However, that does not mean they are in a good position to absorb new costs.”
It’s why the association is looking to next week’s federal budget for some relief. The GDP report landed one week before budget day in Ottawa, and underscores expectations that federal finances my be rosier than expected. An economy growing faster than expected could mean the Liberal government finds itself with extra fiscal room on the back of higher revenues and lower-than-anticipated spending on pandemic aid.