Canadian GDP growth beat most expectations by a full percentage point. The latest GDP report was released this morning and it included a 2.5% annualized increase for the first
quarter.

The result is even more impressive than it appears, say the analysts at BMO Nesbitt Burns, because Statistics Canada has adopted a new measurement method which tends to produce slightly lower results than the old method. Growth was nearly double that of the U.S. in the first quarter, notes BMO, and was up from a 1.6% rate in the fourth quarter,revised from 1.2%.

“Today’s report will prompt plenty of upward revisions to this year’s GDP call for Canada. While a slowdown has clearly taken hold, this provides further evidence that Canada is holding up relatively well and suggests that the Bank’s less aggressive easing course is prudent,” says Nesbitt.

CIBC World Markets analysts are pointing out that the Canadian inflation story is still very tame. “Provincial rebates for energy costs helped cushion the domestic inflation hit from higher fuel prices this winter. The same energy price gains also supported a strong advance in first quarter profits, offsetting manufacturing profit declines.”

While it admits that the number was much stronger than expected, CIBC World Markets remains cautious. “But several of the supports for economic growth in the first quarter look vulnerable. Consumers won1t be seeing a second round of tax cuts this year, and job losses are overdue in a slumping manufacturing sector. Energy exports got a one-time boost from California’s power problems, but payment difficulties in that state, and limits to supply capabilities on this side of the border, suggest that won’t be repeated. We continue to look for a sharp deterioration in growth over the balance of the year, with the key U.S. market looking very shaky.”