Key new output numbers being released Wednesday are expected to confirm what markets, economists and policy-makers hope for and many already suspect - that Canada's economy has left the recession behind and is now firing on all cylinders.
The consensus is for a 0.5 per cent advance in gross domestic product in January following an outsized 0.6 per cent gain in December.
That doesn't sound like much, but on an annual basis it would suggest the economy is racing ahead at a 6 per cent clip, a classic V-shaped recovery that no one thought possible a year ago as the global system appeared headed for the abyss.
Such an outcome would likely be met with a bump up in the value of the Canadian dollar and add more pressure on the Bank of Canada to raise interest rates in the next couple of months.
Bank of Montreal economist Douglas Porter points to a staggering number of indicators, all of which have baffled analysts with their strength in the past few weeks. These include housing starts and sales, consumer spending, rising stock markets and finally the employment picture, which saw the addition of 60,000 full-time jobs in February alone.
Even the depressed auto sector appears set to come out of the repair shop.
On Tuesday, Honda Canada said it will add a second shift and 400 jobs at its No. 2 assembly plant in central Ontario early next year, which follows an announcement by General Motors last week that it will recall more than 700 laid-off employees at Oshawa and Ingersoll, Ont.
"It's looking more and more V-shaped all the time," said Mr. Porter. "It's looking more impressive every day."
Weakness and risk remain. Exports and manufacturing are still far from pre-recession levels. Analysts warn that they still don't know what will happen when government stimulus runs out. The new harmonized sales tax in Ontario and British Columbia will take money out of consumer pockets. Banking reform coming down the pipeline this year is adding a level of anxiety to financial markets. And no one knows how the national debt crisis in Greece and other southern European countries will play out.
Consumers could turn cautious, as a survey commissioned by Toronto advertising agency Bensimon Byrne suggests in finding that despite growing optimism, a large number of Canadians feel they are overburdened with debt and may curtail spending.
Finally, there's the question of whether global central bankers, including Bank of Canada governor Mark Carney, will show sufficient skill in timing the transition from emergency low interest rates to more normal levels. It could all disintegrate into disappointment and finger-pointing in a matter of months, economists agree, but they add that for the first time in a long time the balance of risks is on the upside.
That's a sea change from the past two years, when most thought there was a better chance of the economy cratering than stabilizing.
CIBC chief economist Avery Shenfeld recently upgraded his growth estimate for the first three months of 2010 a full point to 5.1 per cent following the previous quarter's five per cent gain. Both are about 1.5 points better than the Bank of Canada projected two months ago, a massive amount in economic terms representing about $25-billion in output.
Some are even starting to ask what would have been an absurd question just a few months ago: Is the Canadian economy in danger of overheating?
Queens University economics professor Thorsten Koeppl says its understandable that governments and central bankers responded with massive stimulus measures and floor-low interest rates a year ago.
But now there is a risk the stimulus is kicking in too late and is actually pushing down too hard on the accelerator, possibly overheating the economy, he said.
"There's certainly an element in this recovery that shows domestic demand is strong even without the stimulus measures," he says. "So now the question: Is there too much stimulus?"
If there is, Mr. Koeppl says the Bank of Canada will have no choice but to start reining in the economy by raising interest rates.
The consensus is that the upward momentum can't last beyond the first half of 2010. That would mean that conditions will continue to improve, but that it will still take years for unemployment, now 8.2 per cent, to go back to the six per cent level that existed before the crisis.
That happens because interest rates - which have already started to creep up as evidenced by higher rates on many fix-rate mortgages being offered by the major banks - will slow down borrowing and spending, says Scotiabank's Derek Holt.
Other factors expected to be a drag on the economy are the windup of government stimulus spending, a slowing of exports as U.S. inventories are replenished and a slowing of the housing market.
"When you dissect where we're getting the growth, a lot is being driven from U.S. stimulus and the inventory cycle, and the response of Canadians to extremely low interest rates that aren't going to last through the second half of the year," agreed Mr. Shenfeld.
The optimistic view, however, which Mr. Porter doesn't dismiss, is that as even as these drags on the economy take hold, both the resource sector and manufacturing could see a pickup in response to the global and U.S. recoveries.
And sometimes, he says, a little welcome irrational exuberance occurs when economies go from gloom to boom.
"Often times, when a recovery gets going, it builds up its own momentum as more people get hired, confidence builds, they spend more and the more they spend, the more people get hired," he explained.