Canada: Industrial Recovery Leads Way

Consensus Forecasts

GDP growth forecasts have been boosted this month by a notable resilience in activity in the first few months of 2013. After a weak second half to 2012 – culminating in a 0.2% (m-o-m) contraction in December output-based GDP – January and February 2013 both saw increases of +0.3%. February’s advance was lifted by mining, quarrying, oil & gas extraction, while manufacturing output accelerated from 0.6% (m-o-m) in the previous month to 0.8%. Manufacturing was helped by both durables and non-durable goods’ production. Not surprisingly, industrial output benefited from this strong showing, surging from +0.5% in January to 1.2% in February and lending a boost to the 2013 consensus forecast for this variable. Production is now expected to register 1.4%, up from last month’s 1.0% projection. The improved outlook also stems from a resurgent 2.6% monthly showing in manufacturing sales in February. Even though half of the increase was attributed to an 8.7% rise in transport equipment sales, shipments excluding transport still rose by 1.5%. New orders plunged by 4.0%, though, due to the volatile aerospace component. Still, GDP and production in Q1 look set to pick up in light of robust trade news. The merchandise trade balance swung from a C$1.25bn deficit in February to a C$0.02bn surplus in March on the back of a 5.1% (m-o-m) jump in the volume of exports, helped in part by demand for motor vehicles and energy from the US.

Despite some positive news this month, the Bank of Canada scaled down its GDP forecast for 2013 from 2.0% to 1.5%. One of the reasons cited for this was pervading weakness in global demand which is likely to keep export demand moderate. Headline inflation pressures remain soft.

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