The Economy is Searing Hot
The January 2024 Canada GDP print came in hot — Canada’s economy is firing on all cylinders, once again.
Real GDP rose 0.6% in January, after inflation — this is largest monthly jump since Dec 2022.
The services sector, by itself, rose by 0.7% in January.
As we can see from the Stats Canada chart below, the economy has all-but recovered from the pandemic shutdowns.
Strikes Boost Jan Numbers, But What About February’s Numbers?
As many pundits, and Stats Canada itself, have pointed out, alot of this gain can be attributed to various public sector strikes ending in Canada.
But, these strikes can’t account for the red-hot Februrary 2024 advance numbers.
It is difficult to make a case for a slowdown or recession with two months of hot economic data. (After all, a recession declaration requires two months of real economic contraction)
Feb 2024 Forward Guidance
Advanced Stats Canada data indicates that real GDP rose 0.4% in February, with broad-based increases from mining, quarrying, and oil and gas extraction, manufacturing, and finance and insurance.
6.6% Annualized Services GDP Growth
It was probably always inevitable, the 1M new immigrants in Canada need services too.
If we annualize the Jan and February gains (the February numbers are preliminary, but advance numbers are usually fairly accurate) we get a 6.6% annualized GDP growth in Canada’s services sector, and 6% growth in all sectors.
This is after inflation.
Extreme Growth Could Mean Higher Interest Rates
If these gains materialize, it will mean Canada is entering a period of extreme growth, putting pressure on the Bank of Canada to push back its rate cuts even further.
With governments in Canada, corporate Canada and mortgages outstanding in Canada each in the $2-3T range, this could spell trouble for the future. Higher interest rates, for longer, would be debt service take a bigger bite out of cashflows.
One thing is for certain, two months of GDP growth is not a recession, as many doomsayers have predicted is coming for more than 2 years now.
