Canadian economy grew at 2.3% pace in January

The Canadian economy roared into the new year, growing at an annualized rate of 2.3 per cent in January, Statistics Canada reported on Friday.

Economists boost 2017 outlook as GDP growth continues momentum seen in 4th quarter

The Canadian economy grew at a 2.6 per cent rate in the fourth quarter of 2016 and continued strong in January, which saw a monthly expansion of 0.6 per cent. (Bill Pugliano/Getty Images)

The Canadian economy roared into the new year, growing at an annualized rate of 2.3 per cent in January, Statistics Canada reported on Friday.

For the month, gross domestic product grew by 0.6 per cent, double the market consensus prediction of 0.3 per cent, the same as in December.

That continues the rapid pace seen in the fourth quarter of 2016, when the economy expanded by 2.6 per cent, and it has some economists revising their estimates for this year's Canadian growth upwards.

The manufacturing sector had the strongest performance in January, expanding by 1.9 per cent, led by growth in fabricated metal, non-metallic mineral and wood product manufacturing.

But there was widespread growth across both goods and services production, Statistics Canada reported, with wholesale trade, the retail sector, construction, mining and oil and gas all on the upswing.

With the exception of October, gross domestic product has risen every month since June 2016.

Upgrading outlook for economy

BMO economist Doug Porter said he was revising his estimates for Canadian GDP growth in the first quarter to 3.5 per cent, up from 2.7 per cent, and predicted annual growth of 2017 could come in at 2.5 per cent.

"Given the rip-roaring start to the quarter and the nice hand-off from late last year, even tiny gains in the next two months will yield quarterly growth of well over three per cent," he wrote in a note to clients.

He noted that overall industrial production is up 3.4 per cent in the last year, the best gain since the oil price downturn. Oil and gas production alone was up two per cent in the past year, despite the wild swings in oil prices.

Porter predicts the Bank of Canada will hold the line on rates until 2018, but points out there will be pressure on the central bank to give a rosier outlook for the economy.

On Friday, TD Bank also raised its forecast for the first quarter to an annual pace of 3.4 per cent and IHS Markit was estimating expansion of around three per cent.

But economists aren't predicting any interest rate hikes in Canada to come sooner than expected.

Bank of Canada governor Stephen Poloz said earlier this week that he remains cautious and that risks for the economy remain, signalling he will keep the benchmark bank rate low.

Trade risk from U.S. protectionism

RBC assistant chief economist Paul Ferley agrees the Canadian economy will outstrip the 2.5-per-cent growth rate for the first quarter predicted by the Bank of Canada.

But he points out the risks to Canada presented by trade protectionism in the U.S.

"Uncertainty about the potential increase in trade protectionism by the Trump administration presents a downside risk to growth going forward and reason to keep policy very accommodative," he wrote in a note to clients.

Another downside risk is from the housing markets in Vancouver and Toronto, where many economists see a bubble about to pop.