Canadian economy could outpace U.S. in 2017 — unless America’s protectionism kills that momentum

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Canadian economy beats expectations
WATCH: Canadian economy beats expectations. Eric Sorensen reports – Mar 31, 2017

The Canadian economy posted a third consecutive month of solid growth in January, led by the manufacturing sector.

GDP rose by 0.6 per cent in the first month of the year compared to December, Statistics Canada said, a result that beat economists’ expectations of a 0.3 per cent expansion. Growth was widespread across both goods- and service-producing industries, with the manufacturing sector providing the largest contribution at 1.9 per cent.

The oil and gas sector also posted gains.

The strong figures for January cap a recent string of better-than-expected economic data.

READ MORE: Canadian job numbers beat expectations, as full-time hiring soars

“We have liftoff,” BMO chief economist Douglas Porter proclaimed in a note to clients shortly after the release of the new numbers.

READ MORE: Canadian economy grows 2.6 per cent, beats expectations in the last stretch of 2016

Canada appears to have turned corner after the oil-price shock

Earlier in the day, Porter had written that “it’s looking pretty clear that the economy has shaken off the oil-price shock.”

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Canada’s forecast-beating result in January further confirms that view.

READ MORE:Federal Budget 2017: How the budget will affect your pocketbook

The economy has grown by at least 0.3 per cent in seven out of the past eight months, Porter noted.  “To put that in perspective, that’s nearly double the average monthly move over the past 15 years of 0.17 per cent,” he wrote.

Since mid-2016, Canada has grown at a 4.3 per cent annual rate, the fastest pace since the early stages of the recovery after the financial crisis of 2008-2009.

READ MORE: Did last year’s budget create 100,000 jobs? Bill Morneau can’t really say

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Possibly on track to beat U.S. economic growth this year

Given what Porter called “a rip-roaring start” to the year, BMO updated its 2017 forecast for GDP growth from 2.3 per cent to 2.5 per cent.

“We now see Canadian GDP growth outpacing the U.S. in 2017,” wrote Porter. BMO’s current forecast for U.S. GDP growth in 2017 is 2.4 per cent.

But changes to NAFTA and other U.S. moves could put the breaks on Canada’s growth

Canada’s strong performance in January may also put it on course to beat the Bank of Canada (BoC) forecast for the first three months of the year, noted RBC economist Paul Ferley. But governor Stephen Poloz is unlikely to raise interest rates until 2018, both RBC and BMO predicted.

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Higher interest rates are a way for the central bank to keep inflation in check when the economy heats up.

Despite all the recent good news, the BoC remains worried about “significant uncertainties” that could derail Canada’s winning streak.

WATCH: Bank of Canada warns of dangers of Trump’s protectionist policies

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Bank of Canada warns of dangers of Trump’s protectionist policies

The biggest such uncertainty is the Trump administration’s trade policy.

U.S. President Donald Trump will sign an executive order Friday demanding a study on whether other countries use anti-competitive trade practices to keep out American goods while boosting their own exports.

READ MORE: Donald Trump to sign executive orders aimed at cracking down on trade abuse

Canada posted a small trade surplus with the U.S., but it is the smallest among the countries on the list that includes China, Japan and Mexico.

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On Thursday, the administration also delivered a set of guidelines to the U.S. Congress for renegotiating NAFTA. The document suggests the president will seek the ability to impose tariffs if a surge of imports from Canada and Mexico cause “a threat of serious injury” to a U.S. industry.

READ MORE: Donald Trump sends draft NAFTA negotiation letter to U.S. Congress

The administration also will seek to eliminate a requirement in the 23-year-old trade deal that anti-dumping and anti-subsidy disputes be settled via a special dispute panel.

The document also hints at a possible border tax for foreign products coming into the U.S.

The trade objectives outlined in the document appear far more ambitious than the NAFTA “tweaks” Trump spoke of when Prime Minister Justin Trudeau visited Washington in February.

WATCH: Interim Conservative leader Rona Ambrose asks what PM Trudeau’s tweaks to NAFTA will be

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Ambrose asks what PM Trudeau’s tweaks to NAFTA will be

Some of the changes, however, face strong opposition in Washington.

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With files from the Canadian Press and Reuters

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