Canada’s Economy Advances Solidly in November

The Canadian economy expanded by 0.6% (month/month) in November, well ahead of Statistics Canada’s flash estimate of 0.3% and consensus expectations for 0.4%, respectively. The release means that Canada’s real GDP is now 0.2% above its pre-pandemic (February 2020) levels in November.

November’s solid increase in activity was broad-based, with output expanding in 17 of the 20 industries. The service-producing sector led the way, up 0.6%, while the goods-producing sector rose 0.5%.

Manufacturing saw a noticeable jump (1.4%) this month, with transportation equipment manufacturing rising 3.6%. With the re-start in production at assembly plants that were shuttered by supply chain issues, vehicle and vehicle parts manufacturing rose significantly.

On the non-durable side, with energy demand soaring, petroleum and coal products at refineries were up 6.8%! Conversely, the mining and extraction of raw material energy products declined by 1.8%. Part of this was due to the B.C. floods, which slowed transportation hubs.

The accommodation and food services sector continued the positive narrative, growing a robust 3.4%. Restaurant activity was robust, with food services and drinking places rising 2%.

In today’s report, Statistics Canada stated that the estimate for December GDP was “essentially unchanged”. That would mean GDP for the fully year of 2021 would come in at 4.9%.

Key Implications

This was a very solid report as there was a broad increase in output across most industries. This has Canadian GDP decisively above pre-pandemic levels.

Unfortunately, the positives from today’s report are unlikely to last. The Omicron wave has slowed activity in December and January. This is going to be most felt in the service-producing industries, which have been in start-stop mode repeatedly over the last two years.

For financial markets, the Bank of Canada will be pleased to see that the economy has recovered all the output lost over the pandemic. That said, we don’t think it should be too hung-up on the monthly GDP data that will come out over the next two months. Given that we are likely past the worst of the Omicron wave, we expect a strong boost to monthly GDP in February and March.