Monthly Canadian Real GDP - March 31, 2011

As expected, the Canadian economy got off to a strong start in 2011. Canadian real GDP grew at a 0.5 per cent monthly rate in January or 3.3 per cent year-over-year. Economic growth was led by a resurgent manufacturing sector, which has benefited greatly from the Global economic recovery while shaking off the impact of a high Canadian dollar. The manufacturing sector grew at a robust 2.8 per cent rate in January, getting a large bounce from the automotive sector which was up 11.8 per cent.

We anticipate that the Canadian economy will grow at a 3.5 per cent rate in the first quarter of 2011 before decelerating slightly into a 2.5 to 3.0 per cent range for the remainder of the year. While there are substantial downside risks to this outlook ranging from European sovereign debt to higher energy prices and the economic aftershocks from the recent earthquake in Japan, we expect that the Bank of Canada will be eager to begin normalizing interest rates beginning in the summer of 2011, ultimately bringing the overnight rate to 2 per cent.