Recently, the Canadian economy registered a growth rate of 0.5% on a monthly basis in January, according to the report released by Statistics Canada on Friday. This surge came as a relief and optimism to market analysts as the December contraction of 0.1% in the GDP, coupled with the COVID-19 pandemic, had led to a slowdown in the economy. The reading came out better than expected as market analysts had foreseen an expansion of 0.3% in the first month of 2021.
Further analysis of the data by Statistics Canada showed that the mining, quarrying, and oil and gas extraction, manufacturing, and finance sectors had contributed significantly to the surge, featuring a 0.9%, 1.5%, and 0.5% increase, respectively. However, the construction, accommodation and food services, and wholesale dropped by 0.6%, 1.3%, and 0.6%, respectively.
Additionally, the report indicated that economic assumptions for February also appeared to have improved slightly, with an advance GDP report projecting a 0.3% growth rate. Despite this positive development, there were still indications of prevalent headwinds and challenges for the Canadian economy with the uncertainty surrounding the impact of the COVID-19 pandemic.
Regarding the impact of the GDP growth report on the foreign exchange market, the USD/CAD had at first climbed to a daily high of 1.3495, reflecting gains of 0.4%; however, the gains were short-lived as the market reacted on the report. Subsequently, the USD/CAD pairing dipped below 1.35, hinting at a 0.17% increase for the day at 1.3543.
Analysts have also been paying attention to other economic factors, which have been reported to be impacting the Canadian economy. One of these factors is the rise in oil prices, which could contribute significantly to its growth as a net exporter of crude oil. Based on the news released by global oil communities, the price of a barrel of Brent Crude Oil has increased by roughly 27% since the start of the year, with the rise credited to improving economic data as countries globally adjust to the pandemic.
The increase in crude oil prices means that the earnings of oil producers and suppliers could turn out higher, thus impacting the Canadian economy. Canada, a leading exporter of crude oil, could benefit significantly from the surge in prices. Though it is unclear how crude oil prices might play out in the future, the trend for global emergence from the COVID-19 pandemic indicates that it could trend upwards.
Another significant contributing factor to the economy’s growth in GDP is the Canadian Government’s massive spending, with the COVID-19 pandemic driving the need for significant fiscal stimulus. The government has extended various stimulus packages aimed at influencing consumer demand, stabilizing domestic businesses, and improving supply chains. Recently, it was announced that there will be a continuation of fiscal spending on recovery and the vaccines rollout process for 2021, which would further economic growth.
Furthermore, exports are a crucial factor when it comes to economic growth, and it is worth noting that Canada has experienced a 6.6% increase in exports from $45.7bn (CAD) in January to $48.76bn in February. This data is significant since several analysts often use export data as part of their calculation of a country’s GDP. The increase in exports suggests that Canada’s economic recovery is linked to external demand from other countries, showing positive signs for its growing economy.
Conclusion
The Canadian economy’s growth rate in GDP in January was a welcome relief and optimism for the economy post the pandemic. The growth rate was a better reading than anticipated, and it is hoped that it could continue for subsequent months. It was a combination of factors, such as the significant fiscal stimulus from the government, export increase, and the rise in crude oil prices, that contributed to the surge.
However, there is a looming uncertainty concerning the impact of COVID-19 on the Canadian economy, which means that the economy is not yet out of danger. With vaccine rollout in progress, the Canadian government has put measures in place to avoid further economic contraction due to potential future waves of the virus by investing in the country’s recovery through various fiscal stimulus packages. Despite the challenges, the Canadian economic index shows a positive outlook, and this bodes well for the country’s future growth.
