The Canadian economy surged ahead in January, expanding 0.4%, following two months of sluggish growth. This was the sixteenth consecutive monthly increase.

The rise in gross domestic product was widely expected by economists.

BMO Nesbitt Burns says that the rise was the strongest monthly gain since last July, and it also equaled the cumulative growth over the prior four months, as December was revised down to a flat reading from the initial estimate of +0.1%. “A pick-up in auto production, after months of weakness, accounted for much of the strength in January. This sector keyed a 0.7% recovery in manufacturing output, and also heavily supported a 2.6% spike in wholesale trade,” says Nesbitt. “However, auto production tapered off again in February, and sliding U.S. sales have since prompted further cutback announcements.”

Nesbitt predicts that while the auto sector appears headed for a retrenchment, other sectors should rebound from weather-affected levels at the start of the year. “Construction came off the boil with a 0.9% drop in January, but housing starts then snapped back in February to their highest level since 1987. Retail trade dropped 0.2% at the start of the year, but domestic auto sales rebounded sharply in February. Hotels, restaurants, and entertainment were also weak in January,” it notes.

Also, TD Bank points out that the service sector also recorded a respectable 0.3% gain, with any pockets of weakness few and far between. “All told, today’s report provides yet another demonstration of the Canadian economy’s remarkable ability to weather the strong headwinds blowing in from the south. And, without doubt, this morning’s data will add another check-mark in the tightening column for the Bank of Canada — although we still expect war-related uncertainty and the high degree of volatility in financial markets to keep the Bank on hold at its next fixed-announcement date on April 15th.”

TD predicts that the Canadian economy is likely to continue to hold up relatively well in the months ahead, but it cautions that by no means will gains of this magnitude become the norm. “Most importantly, a pullback in auto production is virtually guaranteed over the near term, with motor vehicle sales already weakening and production schedules down on both sides of the border. Moreover, the weakness in the U.S. economy is likely to weigh on Canada’s heavily-export-oriented manufacturing sector as a whole, at least until mid-year,” it says. “But still, there will be some important offsets. First, housing starts snapped back forcefully in February, pointing to strong construction activity going ahead. And, although most domestically-oriented service-sector industries will continue to cling on, education and health care and social assistance are likely to fare particularly well, boosted by significant injections of government funds.”

CIBC World Markets says, “Soaring employment and a dramatic housing starts spike are clear pluses for February, but auto plant shutdowns will serve as a drag in late Q1 and into Q2. That leaves consumers carrying a heavy load going forward, with an anticipated cooling in job growth leaving overall GDP gains running below the economy’s 3% non-inflationary potential through Q3.”

“There were no major surprises in this relatively impressive, but dated, GDP report,” Nesbitt concludes. “Growth is expected to cool considerably over the next few months, as auto production gears down. Still, Canada is on track for quite respectable growth of around 2.5% in Q1.”