Real GDP up 0.2 per cent in January, led by manufacturing

OTTAWA – The manufacturing sector helped drive the Canadian economy’s return to better than expected growth in January after ending 2012 with a mild contraction in December.

However economists cautioned that growth remained below the two per cent pace for the year expected by the Bank of Canada.

Statistics Canada said Thursday that Canada’s gross domestic product grew by 0.2 per cent in the month after shrinking 0.2 per cent in December, beating the 0.1 per cent gain that had been predicted.

CIBC World Markets economist Emanuella Enenajor said the manufacturing sector showed surprising strength given previous reports of softer sales, but cautioned that growth was still not as strong as some have expected.

“While today’s data suggest Q1 GDP could track somewhere in the neighbourhood of 1.5 per cent — an acceleration from the pace seen in prior quarters, that’s still softer than the Bank of Canada’s outlook,” Enenajor said in a brief note.

In its latest outlook, the central bank said it expected growth to gain momentum as the year progresses and result in 2.0 growth in GDP this year followed by 2.7 per cent growth in 2014 — more optimistic than other estimates.

The Organization for Economic Co-operation and Development said Thursday that it expected the Canadian economy to expand 1.1 per cent in the first three months of this year and by 1.9 per cent in the second quarter.

Hurt by the December contraction, real domestic product output moved ahead by just 0.6 per cent in the fourth quarter of 2012 following a marginally better gain of 0.7 per cent in the third.

TD Bank economist Sonya Gulati said despite the better than expected results for January it was too soon to celebrate the economic recovery.

“Manufacturing was a particular area of strength, but this comes after several months of disappointments,” Gulati said.

“The sector has struggled to gain traction over the past year as global economic uncertainty has continued to dominate. Optimism about the health of the U.S. recovery is gaining momentum, but this will likely show up in the numbers in the second half of the year.”

Manufacturing, the biggest contributor to January’s gain, expanded 1.2 per cent following a 1.9 per cent decline in December.

Statistics Canada reported that Canadian goods production in January grew 0.4 per cent as mining, quarrying and oil and gas extraction also increased while there were declines in agriculture, the forestry sector and construction.

The output of service industries was up 0.2 per cent in January, mainly as a result of gains in wholesale trade, arts and entertainment and the public sector.

Enenajor said that the gains in arts and entertainment probably reflected the return of NHL hockey after the National Hockey League and its players union reached a contract settlement and began a shortened playing season.