Canadian Real GDP (April 2019)

Energy sector drives solid April GDP report 

• Economic output rose 0.3% m/m in April, slightly ahead of market expectations. The healthy performance comes on the heels of a 0.5% gain in March, marking the strongest two month gain since mid-2017. Breadth was a bit lacking, as only 11 of 20 major industry groups reported rising output. 
• The goods-producing remained solid, up 0.4% as mining, quarrying and oil and gas activity rose 4.5% on the back of reduced production restrictions in the energy sector. Construction activity also rose, up 0.2%, while the other major categories fell. 
• The service side of the economy rose 0.2%, led by wholesale trade, which climbed an impressive 1.4% month-on-month. Performances in other sub-sectors were mixed, although real estate activity (+0.3%) rose for a second month owing to increased resale activity.

Key Implications

• Thank goodness for energy. Without the surge of activity in that sector, driven by the easing of production restrictions, this would have been a much more modest report. It was encouraging to see construction and real estate in (modestly) positive territory, but retail trade activity remains stuck in neutral, and the decline in manufacturing appears to have been driven by more than just temporary auto plant shutdowns. 
• Still, with the healthy headline from April and early signs from May and June so far encouraging, the Canadian economy seems to be shaking off its late-2018 blues. We now track second quarter growth at 2.5% annualized, nearly double the Bank of Canada's forecast in its April Monetary Policy Report (MPR).
• The consensus view is for the Federal Reserve to reduce its policy rate in short order, but today's data highlights that the situation for the Bank of Canada is quite different, underscored by the bid up in the loonie following this report to levels last seen in October. Uncertainty may be elevated, but an upgraded growth forecast is likely to feature in next month's MPR, leaving another 'no change' interest rate decision and a divergence between Canadian and U.S. monetary policy the most likely outcome.

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