Stronger U.S. economic growth may finally be spilling across the border and boosting Canadian growth, suggests BofA Merrill Lynch Global Research in a new report.

“Recently, we’ve seen encouraging signs that a stronger U.S. trading partner is boosting Canada’s economic engine,” says Merrill. It notes that that export volumes “soared” in the second quarter, and factory production has been rising, too.

“Quickening U.S. industrial production points to good things for Canada, given the strong correlation with Canadian GDP,” it says. Merrill notes that it’s expecting 2.6% GDP growth in the second quarter, and now sees upside risk to its current 1.9% call for the third quarter too.

“The data are encouraging, but this has been a recovery of fits and starts, laden with ‘serial disappointment’ as [Bank of Canada] governor Stephen Poloz put it,” the report cautions. “The real test will be if this momentum persists beyond a Q2 U.S. rebound and eventually triggers higher business investment/hiring.”

Pending evidence of that sort of momentum, Merrill says that it’s still expecting a long wait before the Bank of Canada starts hiking rates, “especially if inflationary pressures continue to show signs of abating”. Indeed, it notes that consumer inflation surprised to the downside in July, which, it says, supports the central bank’s “on-hold stance in the face of previous upside inflation shocks.”