Economy grows at 3.7% in Q1, fuelled by household spending, business investment

Canada's economy roared back to life in the first three months of this year, as more business and household spending pushed growth to 3.7 percent, the government's statistical agency announced Wednesday.

On a month-over-month basis, economic output in March rose a solid 0.5% after no growth in the previous month.

"It wasn't really far from broad expectations, but I would say at the margin, it's mildly supportive for the Canadian dollar and slightly moves us another step towards the Bank of Canada raising rates".

And TD Bank senior economist Brian DePratto said there are issues lurking beneath the surface, including evidence that housing markets are beginning to cool off. Nevertheless, we can take comfort that GDP now has grown at an average annual rate of 3.5 per cent over the past three quarters, matching the average quarterly rate in 2013.

"Consumers are likely to keep their wallets open, helped by past gains in housing wealth".

Business investment also increased.

"Macroprudential policy needs to protect the resilience of the household and banking sector", the International Monetary Fund said.

The surge in first-quarter expansion means Canada has shifted from being a laggard among major industrialized economies, as it struggled under lower commodity prices, to emerging as a growth leader.

Meanwhile, household final consumption gained 1.1 per cent in the quarter as spending on transport and in particular the purchase of vehicles led the way. Real estate construction was up 3.7 per cent. Investments in machinery and equipment were up 5.8 per cent, rebounding after declines in four of the five prior quarters.

What's your main takeaway from Canada's Q1 GDP report?

The strong March number "suggests, against the fear of some retrenchment into Q2, this argues otherwise, that you get probably tracking something around the 2 handle growth pace in the second quarter". "That is a serious, legitimate concern and it's something the Bank of Canada is obviously concerned about". It's also at the high end of growth for large rich nations. The figures for the third and fourth quarters were increased to 4.2 per cent and 2.7 per cent compared to earlier readings of 3.8 per cent and 2.6 per cent, respectively.

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