Canada’s economy extended its streak of monthly gains, with preliminary data showing the expansion shot past expectations for the first quarter, cementing the Bank of Canada’s aggressive path for rate hikes.

Gross domestic product rose for a 10th straight time in March, increasing 0.5 per cent, Statistics Canada reported Friday. In February, the economy expanded a faster-than-expected 1.1 per cent, the agency said. 

The preliminary data suggest first-quarter growth of about 5.6 per cent on annualized basis, which would beat most forecasts.

The report illustrates the surprising resilience of the Canadian economy 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.

The economy is on track to grow by almost double the Bank of Canada’s latest projections for the first quarter, which it forecast at 3 per cent annualized just two weeks ago. Central bank officials estimate the country was already at full capacity at the end of last year, after the economy grew at a strong annualized 6.7 per cent pace in the fourth quarter.

Friday’s report will stoke expectations for more aggressive Bank of Canada interest rate hikes in coming months. The Canadian dollar was little changed, maintaining gains of 0.5 per cent on the day to $1.274 per U.S. dollar at 8:45 a.m. in Toronto trading.

Investors in overnight swaps are fully pricing in a 50-basis-point increase at the next policy decision on June 1, followed by a series of additional hikes that will take the benchmark interest rate to as high as 3 per cent by the end of this year. Since the start of March, the Bank of Canada has raised the overnight rate to 1 per cent from the emergency low of 0.25 per cent set when COVID-19 hit North America.

“The Bank of Canada has set the table for a 50bp hike in June, but data like this will have markets pricing in at least some chance that central bankers need to move more aggressively,” Royce Mendes, head of macro strategy at Desjardins Securities Inc., said in a report to investors.

The numbers also confirm expectations Canada’s expansion will outpace growth in many advanced economies this year, in part because the country won’t be negatively impacted by the Ukraine crisis thanks to the nation’s commodities sector. The U.S. economy shrank in the first quarter, according to preliminary estimates form the Commerce Department on Thursday.

In Canada, February’s gain was the fastest since March 2021, also a post-lockdown month. The increased activity was widespread, with services-related sectors up 0.9 per cent and goods producers gaining 1.5 per cent. Of the 20 sectors tracked by Statistics Canada, 16 posted increases. Accommodation and food recorded a 15 per cent expansion, as authorities lifted restrictions.

For its March preliminary estimate, the agency said client-facing industries led growth, with manufacturing and construction also expanding.