Canada's first-quarter gross domestic product report this week will almost certainly show that the country enjoyed one of the strongest quarterly bursts of economic energy in years. But as we take a moment to pat ourselves on the collective back, economists have already turned their attention to the current quarter – and whether the big first-quarter numbers will prove too good to last.
When Statistics Canada releases the first-quarter real GDP numbers on Wednesday morning, economists expect to see a quarterly growth rate of about 4 per cent on an annualized basis – a consensus estimate that has been creeping steadily higher as the various economic indicators for the quarter have rolled out over the past few months.
Should the first quarter top that call modestly, and exceed 4.2 per cent, it would stand as the strongest quarter of growth in nearly six years.
"At this point, it's pretty much a given that wherever the statistical dice land in terms of those decimal places, it was a barn-burner quarter," said Canadian Imperial Bank of Commerce chief economist Avery Shenfeld.
Yet there has been concern that the quarter was heavily front-loaded – that most of the growth came at the beginning of the quarter, with little momentum carrying through to the end. Indeed, after enjoying January's huge 0.6-per-cent month-over-month GDP surge, the economy didn't grow at all in February. That led some experts to question whether January had been an aberration; while the January jump would all but lock in a strong growth reading for the quarter as a whole, they suggested the economy could end the quarter with relatively little momentum.
But a set of impressive March indicators have largely allayed those concerns. Although we haven't yet seen a March GDP reading (it comes out at the same time as the first-quarter data), economists believe the month generated solid 0.3-per-cent growth.
In just the past 10 days, impressive figures for retail and wholesale trade solidified the view that the economy regained momentum in March.
That has not only nudged the first-quarter estimates higher, but it has buoyed optimism that the economy carried more speed into the second quarter – for which we have seen relatively little data to date, despite being nearly two-thirds completed. (The first big second-quarter data point comes this Friday, with the April merchandise-trade figures.)
National Bank of Canada's index of Provincial Economic Momentum, released last week, indicated continued growth momentum in key economic components nationally in April.
The positive reading "supports our view that the second quarter is set for a continuation of economic growth in Canada, albeit at a slower pace than in the first quarter," National Bank economist Marc Pinsonneault said in a research note.
Economists are still working on updating their second-quarter forecasts, pending the details of the first-quarter and March GDP numbers, but most have been working on something in the ballpark of the Bank of Canada's April forecast of 2.5 per cent. The central bank itself said last week that it anticipates "some moderation in the second quarter" – a choice of words that suggests it has confidence that while the first-quarter's surge won't be repeated, at least some of that strength will carry over to the second quarter.
Economists will be looking at the details of the GDP report for hints about how much of the quarter's growth reflects underlying improvements in the economy. In particular, they will pay a lot of attention to the business-investment readings, amid indications from business surveys that companies are picking up their spending. An expected solid upturn in business capital spending would provide an encouraging underpinning for further economic growth as the year progresses.
They also want to see how much of the first-quarter surge was fuelled by a build-up in inventories, which looks likely after a sizable inventory draw-down in the fourth quarter. A heavy inventory build might imply that some production was essentially pulled forward from the second quarter, which would weigh on growth prospects.
Some temporary factors may also conspire to drag GDP growth back down in the second quarter.
The fire-related shutdown of Suncor Energy Inc.'s Mildred Lake oil sands facility in Alberta took nearly 10 per cent of Canada's oil production offline for half of March and all of April. The facility isn't expected to return to full production until June. With oil and gas extraction accounting for about 6 per cent of Canada's economy, and oil making up more than 10 per cent of Canada's exports, the shutdown almost certainly shaved GDP in a meaningful way for the first half of the current quarter.
And Quebec's construction strike, which began last week, threatens to take a bite out of the country's construction activity for an undetermined time. Quebec, the country's second-biggest provincial economy, accounts for more than 15 per cent of Canadian construction activity. The industry employs roughly 175,000 unionized workers in the province, meaning the strike takes about 4 per cent of Quebec's labour force off the job. However, the Quebec government has already said it plans to introduce back-to-work legislation early this week, which would limit the damage.