The Canadian economy, already the envy of the Group of Seven, is within striking distance of returning to its pre-recession peak.
Fuelled by a hot housing market, a rebounding manufacturing sector, higher incomes and a mini-hiring boom, the economy expanded in the first three months of the year at the fastest annualized pace in more than a decade. The stronger-than-expected 6.1-per-cent rate reported by Statistics Canada Monday was more than twice the rate of growth in the United States in the same period.
The report is the latest in a series of data releases to show that virtually every sector of the economy is picking up steam, and may clinch a Bank of Canada interest rate hike this morning.
Governor Mark Carney is unique among central bankers in the G7 - which also includes the U.S., the U.K., France, Germany, Italy and Japan - in already having to carefully watch inflation as Canada's economy improves. Mr. Carney's most recent projections in April showed annual price increases moving past his 2-per-cent target later this year, giving him enough ammunition to signal he was getting ready to raise interest rates as soon as today.
"The need for near-zero interest rates has clearly passed and the last couple of quarters have demonstrated that the emergency situation is over," CIBC World Markets chief economist Avery Shenfeld said in an interview.
Total gross domestic product is now just 0.4 per cent below pre-recession levels on a quarterly basis, a dizzying rebound from this time last year.
March represented the economy's seventh consecutive month of growth, Statistics Canada said. The 0.6-per-cent reading for the month implied enough solid momentum for Canadian Imperial Bank of Commerce to boost its second-quarter growth forecast by half a percentage point. Growth on an annual basis between October and December, despite being revised down a tick, came in at 4.9 per cent.
To be sure, economists including Mr. Shenfeld and Philip Cross, Statistics Canada's chief analyst, said the move back to pre-recession GDP levels is really a technicality, when one considers the unemployment rate is still at 8 per cent.
Also, the domestic spending that's powering the economy is causing household borrowing to rise to troubling highs, and the government stimulus funds and consumer incentives that have propped up private demand in North America and around the world are being pulled back. Plus, while concern over Europe's sovereign debt crisis has ebbed in recent days, there are still questions surrounding the long-term threat it may pose to the global recovery and Canadian exports.
And much of the first-quarter expansion came from the temporary boost of companies on both sides of the U.S. border rebuilding depleted inventories.
All of which points to a slower growth rate in coming years, as Mr. Carney predicted in a wide-ranging forecast he released in late April.
"While we're headed for some interest rate hikes, it may not take that many to do the trick," said Mr. Shenfeld, whose 2.5-per-cent growth prediction for all of 2011 is below the central bank's 3.1-per-cent forecast.
Still, job creation rose by a record 109,000 in April, a key sign of decent growth in the second quarter too. Residential investment has increased for four successive quarters, as has consumer spending on goods and services. Export and import volumes are both expanding.
In addition, corporate profits climbed for a third straight time, reason for optimism that investment by businesses - which increased modestly in the first quarter - will gather steam and offset the end to government stimulus and the slowdown in the housing market as interest rates rise.
"From our perspective, the year started out very well, much better than we had forecast," said Harvie Andre, the former Mulroney-era Cabinet minister who is now chief executive of Calgary-based Wenzel Downhole Tools Ltd., a firm that sells drilling equipment around the world.
At the end of a very difficult 2009, Wenzel's management team forecast roughly 20 per cent growth in revenue in 2010 from the previous year, Mr. Andre said. So far, growth has been on the order of 40 per cent, he said.
And Richard Goodfellow, CEO of Goodfellow Inc., a wholesaler and distributor of wood and wood byproducts in Delson, Que., said his business got a boost from the construction rebound in Ontario, and has seen "strong" growth in exports to the U.S., despite a Canadian currency at parity with the U.S. dollar.
The domestic case for raising interest rates now is "overwhelming" and "absolutely airtight," said Douglas Porter, deputy chief economist at Bank of Montreal, echoing most Bank of Canada watchers.
In some ways, the Bank of Canada's actual move may be less telling than the statement that comes with it, as that will give some sense of how Mr. Carney sees the Europe situation - and its effect on stocks and commodities around the world - playing out.
Nonetheless, a central question for Mr. Carney in the hours up to his 9 a.m. decision is whether erring on the side of caution would be seen as a prudent show of solidarity with the European Central Bank as it tries to contain the crisis across the Atlantic, or whether staying on hold when he has so many reasons to start tightening might spook global investors all the more.
With files from Bertrand Marotte in Montreal