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Workers produce brake and fuel lines at Caledon Tubing in St Mary’s, Ont. in 2016. Following last week’s solid wholesale trade and manufacturing data, economists have been raising their forecasts for January growth.Glenn Lowson/The Globe and Mail

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After two years of underperforming the United States, is the Canadian economy about to outshine its southern neighbour?

It's starting to look like it.

Friday's release of gross domestic product for January will provide the first read on Canada's economic performance in 2017. Following last week's solid retail sales and wholesale trade and manufacturing data, economists have been raising their forecasts for January growth.

"We are now looking for January GDP to rise almost 0.4 per cent," Bank of Montreal chief economist Douglas Porter said in a note. "In turn, this builds in a [first-quarter annualized] gain of at least 2.7 per cent, with some serious upside risk."

Estimates for first-quarter U.S. GDP growth, meanwhile, are "falling like a rock" and some projections are now below 1 per cent, Mr. Porter said. Weak productivity gains, a strong U.S. dollar that favours imports and some quirks in the way first-quarter U.S. GDP is calculated could all be contributing to the softening U.S. outlook.

North of the border, Canada is benefiting from steady oil prices, which are helping to stabilize the Alberta economy, and from fiscal stimulus measures that may be giving Canada a boost. By contrast, the Trump administration – which has pledged to increase infrastructure spending – received a major setback to its legislative agenda last week when the Republican Party's health-care bill was pulled for lack of support.

Canada's strengthening economy will have implications for the Bank of Canada, which has held its benchmark interest rate steady even as the U.S. Federal Reserve has raised rates three times since December, 2015 – with more increases likely this year.

The topic of Canada's accelerating growth will likely come up at Stephen Poloz's press conference on Tuesday morning, when the Bank of Canada governor is scheduled to speak at Durham College in Oshawa, Ont.

"The Canadian economy seems to be firing on almost all of its cylinders, and that continued into the start of 2017," said economist Nick Exarhos of CIBC World Markets, which is also looking for a 0.4-per-cent advance in January output. In light of the expected strength, CIBC raised its first-quarter GDP growth estimate to an annualized 3.5 per cent.

"As a result, there's only so much longer that the Bank of Canada can maintain its overtly dovish tone, without at least acknowledging the recent beats on the economic front," Mr. Exarhos said.

Friday also marks the last day of the first quarter, which means earnings season will soon be upon us.

As things stand now, it's shaping up as a blowout quarter.

According to FactSet Research, the projected year-over-year earnings growth rate for the S&P 500 is currently 9.1 per cent, based on analysts' estimates. The last time earnings grew at such a scorching pace was the fourth quarter of 2011, when they rose 11.6 per cent.

The sector that is expected to contribute the most to first-quarter earnings growth? Energy. Thanks to a combination of cost cutting and higher oil prices, S&P 500 energy companies are expected to swing to an aggregate profit of $7.7-billion (U.S.) in the first quarter of 2017 from a loss of $1.5-billion in the first quarter of 2016. The average price of oil has averaged about $52.07 a barrel so far in 2017 – more than 50 per cent higher than the average of $33.69 in the first quarter of 2016, FactSet says.

Excluding the energy sector, the S&P's estimated earnings growth rate would be a more modest 5.2 per cent.

As the first quarter draws to a close, fourth-quarter results will continue to trickle in. Among Canadian companies reporting this week, Lululemon Athletica Inc. is scheduled to release results after markets close on Wednesday, Dollarama Inc. will report before markets open on Thursday and BlackBerry Ltd. is on deck before the open on Friday.

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