Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.

Bottom line

Today’s release of the monthly GDP shows that economic activity was robust at the start of 2024. While some of the strength in January was due to the end of the strikes in Quebec, the deep cold in Western Canada was a big source of drag, especially in Alberta. Nevertheless, this weakness will be short-lived, and activity is expected to remain strong in February.

With robust growth in January and February, economic activity is estimated to have increased by +3.5% q-o-q ar in 2024Q1, the strongest since 2022Q2. As a result, Canada is likely to put an end to its current series of declines in GDP per capita.

The big question is how sustainable the strength in economic activity in early 2024 will be, especially considering the distortions from the weather and labour disputes. The details offer some comfort, especially the relatively broad-based gains in the services industries, some weaker growth should be expected in Q2. As we have argued (see What happened to the recession? The role of the policy stance and demographic), whether we see an underperformance in hiring or job losses will matter greatly for the outlook in 2024, especially given household challenges.

Today’s GDP number suggests that growth in Q1 will be stronger than the BoC expected in the January MPR. However, we believe that it is unlikely to impact the Bank of Canada’s thinking. In our view, the BoC is unlikely to consider cutting rates until the momentum measure for its preferred core measure returns sustainably well below 3%, meaning that its preferred measures of core inflation are below 3% and that their momentum is around or below 2.5%. This is because inflation expectations and perceived inflation remain elevated. While the first condition has been met, the second will likely be reached in April, supporting our view that the BoC will cut its policy rate at the June meeting.

For Alberta, the details available in the report suggest that economic activity likely underperformed the rest of the country in January due to a drop in oil and gas extraction due to the cold weather. However, this weakness will be temporary and high energy prices remain a tailwind to the Alberta economy this year, but not as much as in the past decade (see Where’s the boom? How the impact of oil on Alberta may have permanently weakened). Moreover, continued strong population growth in the province continues to push economic activity higher.

The monthly GDP increased 0.6% in December (+0.9% y-o-y), stronger than expectations. The details show that the gains were broad-based with 18 of 20 industrial sectors posting gains on the month. However, the data was impacted by special factors, such as the extreme cold in Western Canada and the end of the teachers’ strike in Quebec. Despite the overall economy being 4.7 percentage points above its pre-pandemic level, 9 out of 20 industrial sectors still have economic activity below their pre-pandemic levels, namely agriculture, natural resources extraction, utilities, construction, transportation and warehousing, management of companies, administration and support services, arts, entertainment and recreation, and accommodation and food services.

Statistics Canada’s preliminary estimate shows that GDP increased by 0.4% m-o-m in February. This suggests that growth in the first quarter of 2024 could be around +3.5% q-o-q ar. This would be the strongest quarterly increase since 2022Q2. Moreover, the estimated 0.85% q-o-q non-annualized gain estimated for Q1 is likely to be stronger than population growth, meaning that GDP per capita is likely to increase in the first quarter for the first time since 2022Q2.

The goods-producing side of the economy rose 0.2% m-o-m in November. Due to the extreme cold weather, there is a strong gain in utilities (+3.2% m-o-m). There were also solid increases in manufacturing (+0.9% m-o-m) and agriculture (+0.5% m-o-m). The higher activity was partly offset by a decline in natural resource extraction (-1.9% m-o-m) and in construction(-0.5% m-o-m) due to the extreme cold.

The services-producing side of the economy jumped higher by 0.7% in January. The end of the teachers’ and health care workers’ strike in Quebec led to a 6.0% m-o-m increase in education and a 0.8% m-o-m increase in health care. Nevertheless, all the other service sectors showed gains in January, with a strong contribution from real estate (+0.4% m-o-m), arts, entertainment and culture (+1.0% m-o-m), and accommodation and food services (+0.6% m-o-m).

For Alberta, there is no specific data in the report. However, we can make an assessment based on activity in some key industries specific to Alberta. The big decline in oil and gas extraction and pipeline activity shows that the deep cold in January significantly held back economic activity. However, strong utilities activity likely reduced part of this drag. As a result, Alberta likely underperformed the rest of the country.


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Independent Opinion

The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.