A string of stronger-than-expected reports are prompting some economists to revisit their forecasts for the strength of the recovery.

Some are now pencilling in higher forecasts after recent reports showed strength in manufacturing and wholesale trade, while retail sales continue to climb.

Bank of Montreal, for example, boosted its forecast for Canada’s first-quarter gross domestic product by a full percentage point, to 4.7 per cent from its earlier expectation of 3.7 per cent. It now believes the economy will grow 3.2 per cent this year, rather than the 3 per cent it had previously predicted.

“And that may not be the final word,” said deputy chief economist Douglas Porter in a note. “With the housing sector almost back to pre-recession highs, employment recouping almost 40 per cent of its recession losses and real retail spending and auto sales close to their highs, can we really call this a fragile recovery? It looks more and more V-shaped by the day.”

Canada’s economy powered back to life in the final quarter of last year, expanding by a better-than-expected 5 per cent thanks to the housing market, consumer spending and trade.

Royal Bank of Canada, too, believes the first quarter will show some heat. It had pegged growth at 3.8 per cent, but now has a “monitoring” forecast of more like 4.6 per cent.

“In early 2010, it looks like the strong momentum is being maintained and that strength does look fairly broadly based,” said assistant chief economist Paul Ferley in an interview.

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On March 16, Citizenship, Immigration and Multiculturalism Minister Jason Kenney launched consultations to identify how immigration can best respond to Canada’s new and emerging labour market needs.

The Government of Canada is seeking the views of Canadians on how to help lead Canada to full economic recovery from the global recession. These consultations will look at worker shortages in trades and professions across Canada as well as the factors that affect an immigrant’s ability to succeed in Canada’s work force.

The consultations will help develop instructions to immigration officers on which economic immigration applications are eligible for processing. As part of the Action Plan for Faster Immigration, the first set of instructions was issued in November 2008 as a tool to keep the backlog of applications from growing, to reduce wait times for new applications and to better match new economic applicants to Canada’s labour market needs.

Before the Action Plan for Faster Immigration was introduced, the backlog in the federal skilled worker category stood at more than 600,000 applicants, and that number has gone down by almost 40 per cent. People applying now to the federal skilled worker program can expect to receive a decision within one year compared to six years under the old system.

The consultations will be held with national and regional stakeholders, provinces and territories and the general public between now and April 16, 2010.

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After struggling to achieve takeoff last summer, it turns out that Canada’s economy blasted ahead in the fourth quarter at a pace that defied all expectations.
Its five-per-cent annualized growth rate was the strongest in nine years, said Statistics Canada Monday.

This surge of growth, which eclipsed the 3.3 per cent advance expected by the Bank of Canada, was “astonishing,” said Yanick Desnoyers and Marco Lettieri, economists at the National Bank.

You might call it a good news/good news joke.

First, there was the good news analysts expected; a rebound in our depressed exports  helped by the revival of Canada’s auto industry from its near-death experience earlier in the year  allowed trade to contribute to growth instead of subtracting from it.

But there was more. The other good news  the news that blew way past expectations  was an explosion in home construction and renovation, noted Peter Buchanan, an economist with CIBC World Markets.

Stimulated both by a recovery in housing demand and by government tax breaks for home renovations, residential investment shot up at a 30 per cent pace, its biggest jump in 24 years.

In fact, practically everything was moving in the right direction during the quarter, pushing a key measure of economic health, final domestic demand, ahead at a vigorous 4.6 per cent rate, faster than in any other G7 nation.

That makes Canada’s recovery less fragile than in most other rich nations, said Capital Economics, a British consulting firm.

Final domestic demand attempts to measure a country’s own homegrown economic growth, excluding the effect of trade and inventory adjustments  which can be volatile enough to distort the figures at times like this.

For example, U.S. growth in the fourth quarter appeared to be even stronger than Canada’s, at 5.9 per cent, until you noticed that inventories accounted for about half of this growth.

Inventories  all the stuff that companies keep on the shelf and in the warehouse  tend to expand when times are improving, but to be cut back sharply when times are tough.

During the deep recession last year, many firms laid off workers and cut production of goods to an absolute minimum, conserving cash by running down inventories instead. Retailers also tried to keep stocks lean.

Such a deep cycle of inventory cutting slashed economic growth sharply for most of last year.

But when the cutting slows and eventually reverses, there’s an mirror-image surge in growth until levels of inventory return to normal.

It was the beginning of this inventory boost  which is nice, but only temporary  that was such a big factor in U.S. growth in the fourth quarter.

In Canada, though, inventory cutting continued apace in the same period, leaving more solid, demand-driven activity accounting for this country’s rebound in growth. Our inventory boost might be beginning about now.

Before we get too euphoric, however, it’s important to note that most analysts think Canada’s growth rate must slow later in the year. First, the housing market is clearly overheated and will cool as interest rates rise  something that could begin as soon as July after this strong growth report.

Second, a slowing of rapid U.S. growth will exert a drag on further export gains.

Still, Canada’s growth could settle down to a still-healthy rate around three per cent to 3.5 per cent, predicts economist Diana Petramala at the Toronto-Dominion Bank.

And the boost in the fourth quarter seems likely to persist into the first quarter, which ends this month. Economic growth in December was significantly stronger than expected, which boosted the starting point from which growth began in this quarter.

Already, we’ve seen the benefit of strong fourth-quarter growth in the job market, which added about 90,000 positions during the period. That strength persisted in January, which saw the creation of another 43,000 jobs.

As a result, Petramala, who had expected to see the unemployment rate remain around 8.3 per cent as discouraged workers returned to the job market, offsetting the employment gains, now thinks job growth could be strong enough to let unemployment edge as low as 8.1 per cent in the next month or two.

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Canadians have long tended to define themselves by what they are not: Americans. As Finance Minister Jim Flaherty prepares to deal with the fiscal cost of the recession, that distinction is taking on new meaning.

Facing the biggest budget deficit since the Second World War and none of the spirit of political compromise necessary to fix it, prospects for the United States. Fiscal reality limits the Obama administration’s options, and it remains uncertain whether the economy is strong enough to reverse an unemployment rate of about 10 per cent without government spending.

As a general rule, what’s bad for the United States is worse for Canada. Exports account for about a third of Canada’s gross domestic product and more than 70 per cent of those shipments are destined for buyers in the country’s southern neighbour. In 1982, the U.S. economy contracted 1.9 per cent, compared with a 2.9-per-cent slump in Canada, according to the International Monetary Fund; in 1991, U.S. gross domestic product dropped 0.2 per cent, compared with a decline of 2.1 per cent in Canada.

But Canada appears destined to do better during this period of American economic woe, which has come to be typified by that stubbornly high unemployment rate and a budget deficit that is 10.6 per cent of gross domestic product, the highest since the U.S. faced the bill for its participation in the Second World War.

The biggest reason is that Canada’s finances are so much stronger. The federal deficit, while a record in nominal terms, is about 4 per cent of GDP. The difference with the U.S. and other industrial countries has captured the attention of international investors, who bought a record amount of Canadian bonds in 2009.

Demand of that kind is lowering federal and provincial governments’ borrowing costs, suggesting Canadian taxpayers won’t be facing the degree of tax increases or spending cuts coming the way of their American cousins. That leaves Canada in a better position to take advantage of the rebound in the global economy: While the U.S. and other countries will be paying off their debts, Canada will be relatively free to take advantage of the upturn.

“That’s a competitive advantage right off the bat,” said Peter Hall, chief economist at Ottawa-based Export Development Canada, the country’s export credit agency. “On a relative basis, Canadians will be better off.”

To understand Canada’s competitive advantage, consider the gap between yields on Canadian and U.S. 30-year bonds. The difference, or spread, is currently about 50 basis points, or half a percentage point, in Canada’s favour. The average spread since 2000 is seven basis points, according to Mark Chandler, a fixed-income strategist at RBC Dominion Securities Inc. in Toronto. The current spread shows investors are willing to forgo yield for the security of lending money they can be certain will be repaid, something that will make Finance Minister Jim Flaherty’s job far easier because he will be able to save billions in interest payments.

“Canada, from a safe-haven perspective, looks good,” Mr. Chandler said.

U.S. President Barack Obama’s deficit could also help Canadian companies in a more immediate way. Only 36 per cent of the President’s original $787-billion (U.S.) stimulus plan has been spent. That means more than $500-billion from that program will be injected into the American economy over the next couple of years, a jolt that should help Canadian exporters.

There’s also potential for an additional $100-billion in stimulus spending, which Mr. Obama pledged in his budget last month. That money has an even greater chance of reaching Canadian companies because differences over the Buy American provisions that were attached to the original stimulus program have been ironed out.

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