Canadian GDP came in stronger than expected at 6% for the first quarter, beating estimates of 5.4% and the U.S. performance at 5.6%. A rate hike next week seems certain to follow.

“The grass doesn’t look greener on the other side of the fence, with the Canadian economy bounding ahead of U.S. results in the early stages of this recovery,” says CIBC World Markets. “Including an upward revision to the final quarter of 2001, Canada’s 2.1% real growth over the past four quarters is also meaningfully ahead of the 1.5% American gain.”

CIBC says that in the first quarter, much of that difference was driven by business capital spending, “which while falling in Canada, wasn’t as dramatic as was the case south of the border. Despite a huge advantage in job gains, consumer spending has actually been a bit tamer in Canada in each of the last two quarters, as has government spending. Housing boomed in Q1, with the mild winter likely representing a greater distortion to normal seasonal slowdowns than stateside. Exports also did well, as expected, with the U.S. economy rebounding in the quarter.”

BMO Nesbitt Burns says that inventories were the big surprise, adding almost 2.5% to growth by themselves. Corporate profits snapped back in Q1, but are down 13.3% annually, it notes.

RBC Financial says, “Today’s first-quarter GDP report confirmed that Canada’s economy is in the midst of a full-blown recovery, which is on the cusp of turning into the next well-balanced business cycle expansion.” RBC says that Canada’s business investment and profit picture is looking much rosier than anticipated.

“On balance, Canada continues to lead the G7 in growth this year with clear implications for monetary policy. We anticipate that the Bank of Canada will hike the overnight rate of interest next Tuesday by 25 basis points to 2.50% as it continues to re-normalize the stance of monetary policy to a level consistent with sustained above-trend growth,” says RBC.

“While inventories helped pump up the headline 6% growth spike, the underlying results are still quite healthy. This report all but locks in a rate hike by the Bank next Tuesday,” agrees BMO Nesbitt.

CIBC cautions that the monthly GDP figures already point to a deceleration, but it still sees a rate hike next week too. “As a result, we don’t see the higher than expected GDP figure as affecting our call for the Bank of Canada to hold to a quarter point rate hike next week.”