Economists say Canada’s latest economic data shows the country is surprisingly strong, as it catches tailwinds from growth in the United States.

On Thursday, Statistics Canada released preliminary data that shows Canada’s gross domestic product (GDP) grew 0.4 per cent in February, signifying the strongest growth since 2022 when coupled with January’s growth of 0.6 per cent. 

Additionally, annualized numbers for the first quarter – assuming a flat March – would be 3.5 per cent, compared to just one per cent in the fourth quarter of 2023.

 Sal Guatieri, director and senior economist at BMO Capital Markets, called the data a “great start to the year.”

“(It’s a) much better start to the year than anyone anticipated and even stronger than (Statistics) Canada initially thought because they were calling the 0.4 per cent growth in their flash estimates,” he told BNN Bloomberg in a television interview on Thursday.

“Overall though it's a better-than-expected number. It does set the stage for a further strengthening (of) the Canadian GDP in the first quarter. We were calling for 1.5 per cent annualized rate, (we) might need to bump that up a little bit.”

Guatieri pointed to the strong U.S. economy, the end of a public workers strike in Quebec – which reached a deal in January – and Canada’s robust immigration for economic gains in the months of 2024.

“Pretty tough for your economy not to grow -- even at a decent rate -- when the population is growing the fastest in over six decades, at upwards of a three-per-cent rate,” he said.

“The U.S. economy grew more than three per cent annually in the fourth quarter, so that's giving a nice boost to Canadian exports.”

James Orlando, director and senior economist with TD Economics, called the data “very positive,” but worries about how long the positivity will last.

“We saw the exact same thing happen in 2023 in the first quarter where growth was looking like it was going to be around three per cent, and then in the following quarters, we had lacklustre growth for the rest of the year,” he told BNN Bloomberg on Thursday.

“Our view is that this is nice. It means the bottom hasn't fallen out of the Canadian economy, but we don't think it's something that's really going to be something to write home about when it comes to how sustainable this is.”

Orlando said the economic pressure Canadians face, smaller investment in Canadian businesses, and the federal government’s recent crack down on immigration are reasons for his skepticism on long-term growth.

Jules Boudreau, senior economist at Mackenzie Investments, said the Quebec strike boosted the economic data but doesn’t explain all the strength we’re seeing.

“A chunk of that growth is an artificial rebound in education services and related industries following the conclusion of the Quebec public sector strike, but the recent strength is broad-based, reflects more than public sector dynamics,” he said in a statement.

What about interest rates?

When it comes to how Thursday’s figures impact how the Bank of Canada might think about cutting interest rates, Guatieri said he is keeping to his earlier prediction.

“We're still looking for the bank to begin cutting interest rates in June of this year and they could cut rates by a whole 100 basis points later this year, but the risk is probably on the side of a delay if we continue to see better economic data out of Canada and out of the U.S.,” he said.

Guatieri said the strength in the U.S. economy is keeping Canada above expectations, which underpins the Bank of Canada’s plan to wait before cutting this summer.

“We do see some rebounding consumer spending and maybe hopefully business investment, which has actually been shrinking for the past year. That could lead to a much stronger economic growth this year for the Bank of Canada,” he said.

“That would be another reason to remain very patient before cutting interest rates.”

Boudreau is also maintaining his rate-cut projections in light of Friday’s data.

“GDP is backwards-looking and a poor measure of the direction of the economy in the short term, so this encouraging print probably won’t influence the Bank of Canada’s rate decisions,” he said. “We still expect the Bank to cut in the first half of 2024, but recent data indicates that the recent economic stagnation in Canada isn’t transitioning to an outright recession.”

Boudreau also believes Canada won’t see an uptick in construction projects until the Bank of Canada decides to cut rates.

“It’s hard to see a path to construction rebounding that doesn’t include a Bank of Canada rate cut or two, especially with the recent news that the federal government will be curtailing non-permanent resident immigration,” he said.

For months, economists have pointed to a June date for the start of cuts, but Orlando said the latest data is giving some of them pause.

“The recent economic data we've gotten shows the bottom isn't falling out, but it doesn't show that we're probably going to be accelerating into the future,” he said.

“(It) probably just means that the Bank of Canada has optionality with respect to when it can actually decide to cut interest rates and so that's why you're seeing people move from June towards July.”

With files from Bloomberg News