OTTAWA - The Canadian economy showed signs of life in January with the gross domestic product rebounding sharply to the positive after falling dramatically to the negative in December.
The monthly growth of a 0.6 per cent growth for January was the biggest for the economy since April 2005 and all but reversed December's alarming 0.7 per cent retreat.
"The snap-back in January shows that most of the steep drop in the prior month was temporary and clearly exaggerated the weakness in the economy,'' said BMO deputy chief economist Douglas Porter.
The strong rebound was led by a surprising source, manufacturing, which increased 1.7 per cent after a 3.4 per cent fall-off in December.
The troubled auto sector also bounced back from a massive 27 per cent plunge in December to record a growth of 12 per cent in the first month of the year, and Statistics Canada noted that preliminary data for February suggested continued auto-industry strength.
Meanwhile, sectors such as retail sales and wholesale trade that have supported economic growth over the past year recorded solid advances of 1.2 per cent and 2.8 per cent in January.
Durable goods manufacturing rose 2.6 per cent, far outpacing the modest 0.4 per cent increase in non-durable goods.
Of the 21 major manufacturing groups, 16 recorded increases, but almost one-third of the overall gain came from auto manufacturing.
Still, the good news was ignored by currency markets and the Canadian dollar was trading down 0.47 cents US at 97.43 cents in mid-morning.
Scotiabank currency analyst Camilla Sutton said the loonie, like other cyclical currencies, was being affected by fears of a global economic slowdown.
"It's still very close to where it closed on Friday near parity. Also, today is quarter end so there could be some flows in the market pushing things around,'' she added.
And the Canadian economy is not out of the woods yet, said Paul Gauthier, an economist with the TD Bank, noting that the U.S. economy is likely in a recession and there will be little upside for Canadian exports in the near future.
Lastly, Gauthier said domestic demand is expected to slow from its breakneck pace of the last quarter.
"While the wheels aren't expect to come off the Canadian economy because many fundamentals, most important employment, should provide enough support to avert a national recession, the most likely scenario is that real GDP will barely grow in the first half of this year,'' he said.
But Porter also pointed out that talk of Canada following the U.S. into a recession should subside with January's strong growth, slightly above market expectations of 0.5 per cent.
He pointed out that even if economic growth were to be flat in both February and March, the annualized GDP growth for the first quarter of this year should be near one per cent, close to matching last quarter's 0.8 per cent advance.
"I'm not saying it's impossible to get a negative for the quarter, but it's becoming much less likely,'' he said. "That's encouraging.''
Also advancing in January were the financial sector, retail trade, oil and gas, accommodation, food services and agriculture, while construction crept up 0.1 per cent.
However, utilities, mining and forestry declined.
