Canada’s economy expanded by a less-than-expected 3.1% annualized pace in the first quarter as exports fell due to temporary supply constraints in the oil sector, but domestic demand jumped in a sign the economy remained resilient at the start of the year.

The expansion was less than the 5.2% forecast by economists, and weaker than what had been suggested by preliminary data from Statistics Canada. It was also down from a 6.6% rate in the final three months of last year.

Exports fell by an annualized 9.4%, in part due to a series of production disruptions in the nation’s oil sector that included Covid shutdowns, cold weather issues and planned maintenance.

Domestic demand accelerated to a 4.8% annualized pace, up from 3.7% in the fourth quarter of last year on the back of stronger consumption and investment, in both housing and other sectors.

The numbers suggest households and businesses continued to spend, despite Covid-19 restrictions meant to contain the spread of the omicron variant, and the quick rebound as authorities eased the lockdowns in February and March.

Rate Hikes

While slower than economist expectations, the first-quarter expansion was in line with Bank of Canada forecasts and is unlikely to alter the path for interest rate hikes, including a half-percentage increase on Wednesday.

The Canadian dollar was little changed on the report, trading 0.2% lower at C$1.2676 per U.S. dollar. 

On a monthly basis, gross domestic product rose for a 10th straight time in March, increasing by a stronger-than-expected 0.7%. The expansion slowed in April, with Statistics Canada reporting a preliminary estimate of 0.2% growth for the month.

Most components of domestic demand sped up in the first quarter. Consumption grew at an annualized pace of 2.9% at the start of the year, up from 2% in the fourth quarter, even with the restrictions. Household spending was helped by a jump in worker compensation, which was up 3.8% on a non-annualized basis thanks to “significant” wage growth, the statistics agency said. 

Excluding the third quarter of 2020, that’s the fastest pace since 1981.

Higher Savings

Much of the gain in compensation wasn’t even spent, with the savings rate increasing to 8.1% in the three-month period, up from the end of last year.

While oil volumes fell in the quarter, the nation’s economy still generated more receipts from the sector thanks to higher prices. Growth in nominal output rose 3.7% on a non-annualized basis due to higher wages and profits.

Investment in housing jumped to an annualized 18.1% in the first three months, up from 12.4% in the fourth quarter. Spending in non-residential investment slowed slightly but remained at a robust 9% annualized growth.

The nation’s economy also got a boost from higher inventory build up at the start of the year.