As the number of COVID-19 cases dropped and public health restrictions eased, Canada’s economy grew 1.1% in February, its largest increase in a year and a sign of resilience, according to data released by Statistics Canada on Friday.
The growth was broadly seen across industries, most notably in services, ranging from transportation (3.1%) to accommodation and food services (15.1%), to arts and entertainment (8.4%). These industries have completely rebounded following two months of decline due to the omicron variant.
Demand for travel and recreation will only increase this spring and summer, despite rising prices. There is more pent-up demand in those areas than other sectors, and in Canada more than in other countries, because COVID-19 restrictions have been rather stringent. This summer marks the first time many Canadians can travel since February 2020.
Unsurprisingly, mining, quarrying, oil and gas grew 3.4% in February. Commodities sectors, including oil and gas, raw metals, and agricultural commodities, are expected to grow even more in the coming months. The war in Ukraine has cause a global supply shock, leading to rising demand for Canadian commodities as the world turns to Canada for supply.
Construction and real estate continued to expand at 2.7% and 0.4%, respectively. With rising interests ahead and double-digit annual increases in housing prices that price out prospective buyers, however, the overheated housing market might soon slow.
Despite a better-than-expected rebound in the Canadian economy, price stability remains a major threat to growth. While Canadians will still be willing to pay hefty dollars to travel after over two years of pandemic restrictions, consumer demand for goods will eventually be curbed by persistent inflation. The growth in the economy and the threat of inflation give the Bank of Canada more reason to solidify a .5% interest rate hike in June as well as potentially more .5% and .75% hikes ahead.