Strong Canadian GDP justifies the hawkish tone from the BOC – CIBC

Canadian November GDP at +0.6% m/m was stronger than the +0.3% advance estimate and the 0.4% consensus. In addition, the advance estimate for December was flat.

Tally that up and it’s looking like a very strong quarter for the Canadian economy. January will be a large negative number due to heavy covid restrictions but the early tally from December — if it holds up — may be a solid demonstration of resilience and consumers’ newfound ability to live with covid.

CIBC notes that areas such as arts & entertainment (-23% vs February
2020) and accommodation & food service (-9%) are still a ways away from a full recovery even by November, with more pain ongoing now.

The stronger than expected November print leaves growth in Q4 as a whole tracking around 6
1/2% even with the flat December. That’s slightly ahead of the 5.8% estimated by the Bank of Canada in its MPR, and
further justifies its hawkish tone on interest rates, even with the expectation that Omicron-related restrictions will have
1
Annualized.
resulted in a sluggish Q1. We still expect to see a fairly sizeable decline in January GDP, but a bounce-back in
February/March, which will average out to little or no growth for the quarter as a whole.

The Canadian dollar showed little response to the data but with Macklem facing growing pressure to hike and energy prices sizzling, there’s plenty to like. At the moment though, the entire market is being dragged around by the risk trade. USD/CAD was last at 1.2682.