Data released on Friday showed monthly GDP in Canada rose by 0.1% in February, below market consensus. Analysts at CIBC point out that a slowing economy should keep the Bank of Canada (BoC) on hold for the remainder of 2023, rather than pulling the trigger on another rate hike, before cuts arrive early next year.
Key quotes:
“After sprinting out of the gate to start 2023, the Canadian economy had already hit a wall by March. Monthly GDP rose by 0.1% in February, which was a tick below the consensus forecast and a noticeable deceleration from an upwardly revised 0.6% gain in January. Moreover, the March advance estimate suggests that GDP fell slightly to end the quarter, implying little momentum heading into the second quarter.”
“The weak end to the first quarter, combined with the negative but temporary impact of the public sector strike on Q2 GDP, increases the risk of a contraction in economic activity during the second quarter. However, the Bank of Canada will look through that volatility, and focus instead on trying to get and keep inflation and inflation expectations under control. While a weakening economy should prevent policymakers pulling the trigger on another interest rate hike, we don’t see cuts forthcoming until early next year.”
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