GDP grows 3.7% in Q1, revised upward for Q3 and Q4

The pace of Canada’s economic growth picked up steam in the first quarter of this year, helped by continued household spending and a turnaround in business investment.

Read: More opportunity than risk for Canadian economy

Statistics Canada says real gross domestic product grew at an annualized rate of 3.7% in the first three months of the year.

That was short of expectations. Economists had estimated the growth rate for the quarter would be 3.9%, according to Thomson Reuters.

However, the last month of the quarter was stronger than expected.

Growth in March came in at 0.5%, which was higher than the estimate of 0.2%.

The boost in March was helped by manufacturing, which had a strong gain of 1.6%.

“The Canadian economy continues to demonstrate a breadth of expansion,” says senior economist Brian DePratto of TD Bank, in an economics report. “80% of Canadian industries, representing approximately 90% of output, expanded in March, the best performance since May 2014.”

But, going forward, a large contribution in Q1 from inventory rebuilding could adversely affect Q2 production, says Avery Shenfeld, managing director and chief economist at CIBC Capital Markets, in an industry note. That’s because half the rebuilding came from manufacturing.

On the other hand, “Q1 also saw a surge in imports (up 13.7% annualized), which might also have been part of that inventory build and which therefore would not be a Q2 drag,” he says.

He further notes that household consumption, which was a brisk 4.3%, came in part from a drop in the savings rate, suggesting a slower pace for Q2.

Bottom line: GDP is up 3.2% in the past year, a big step toward narrowing economic slack, “and that’s the most important takeaway for investors,” says Shenfeld.

Results for the second half of 2016 were also revised higher as the figures for third and fourth quarters were increased to 4.2% and 2.7%, compared with earlier readings of 3.8% and 2.6%, respectively.

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