Breadcrumb Path Hyperlinks
Information Economic system
GDP forecast to contract in March, the primary time development has landed in destructive territory since October 2022
Article content material
The stage appears set for Canada’s financial system to shrink within the second quarter because the strike by federal public sector employees takes a chunk out of the financial system and development within the providers sector begins to gradual.
Commercial 2
Article content material
Canada’s financial system probably contracted 0.1 per cent in March, in keeping with a complicated estimate from Statistics Canada.
Article content material
The nationwide knowledge company launched the superior estimate for March on April 28, together with outcomes for February exhibiting the financial system clinging to development because it expanded 0.1 per cent from the month earlier than, lacking StatsCan’s early estimate for February of 0.3 per cent development. Analysts had known as for a rise of 0.2 per cent month over month in February.
“With the preliminary estimate pointing to a contraction in March and exercise set to undergo in April as a result of federal employees’ strike, GDP development is more likely to flip destructive this quarter,” stated Stephen Brown, economist for Canada at Capital Economics.
Commercial 3
Article content material
Charles St-Arnaud, chief economist at Alberta Central, stated in a observe on April 28 that GDP for the second quarter will probably are available flat based mostly on the “destructive financial influence” of the strike and March’s anticipated pullback in development.
The general public sector boosted GDP in February, however economists anticipate the on-going PSAC strike will gradual development this month. “It’s fairly attainable that April may even see a small dip in month-to-month GDP,” stated Douglas Porter, chief economist at BMO Economics.
Companies additionally confirmed indicators of being a future drag on financial development.
Brown of Capital cited proof that the high-contact providers sector — “a key driver of total development in current months” — misplaced steam in February. Whereas total, providers grew 0.1 per cent in February, declines had been recorded in a number of sectors together with retail and wholesale commerce, arts and leisure, transportation and motels and eating places.
Article content material
Commercial 4
Article content material
The weak point seen in discretionary client spending are “probably the results of the loss in buying energy as a consequence of excessive inflation and rising debt-service price,” stated St-Arnaud. “Family spending stays key to the outlook and is probably going supported thus far by the sturdy labour market.”
StatsCan forecast GDP of 0.6 per cent within the first quarter, that economists stated translated into an annualized fee of two.2 per cent to 2.5 per cent — just about in step with the Financial institution of Canada’s estimate of two.3 per cent.
If GDP contracts in March it is going to be the primary time development has landed in destructive territory since October 2022. Economists have been persistently calling for a recession — two consecutive quarters of destructive GDP — to hit the Canadian financial system since final 12 months.
Commercial 5
Article content material
Right here’s what economists are saying concerning the GDP numbers and what they imply for the Financial institution of Canada and rates of interest.
Charles St-Arnaud, Alberta Central
“The discount within the momentum of the Canadian financial system shall be welcomed by the Financial institution of Canada, because it means that it was proper to stay on maintain on the April assembly to higher assess the influence of the will increase in rates of interest on the financial system. We proceed to imagine that the BoC will depart its coverage fee unchanged for the remainder of the 12 months.”
Stephen Brown, Capital Economics
“The preliminary estimate for March implies that GDP declined by 0.1 per cent m/m final month. Whereas that’s nonetheless in step with 2.5 per cent annualized development within the first quarter – a little bit stronger than the 2 per cent acquire we pencilled in – it units the stage for a a lot weaker second quarter. GDP might lower by as a lot as 0.3 per cent m/m this month because of the federal employees’ strike. Even when the strike is resolved this weekend and GDP absolutely rebounds in Might, GDP would nonetheless be on monitor to say no within the second quarter.”
Commercial 6
Article content material
Nathan Jazen, RBC Economics
“The surge in GDP in January more and more appears to have been a head-fake, with exercise softening over February and March. And client spending headwinds proceed to construct as increased rates of interest movement step by step by way of to family borrowing prices with a lag. With GDP development monitoring weak momentum into Q2, the BoC isn’t anticipated to hike rates of interest once more. Though inflation can be nonetheless too agency to justify a fast shift to cuts, even with the financial system exhibiting indicators of softening.”
Douglas Porter, BMO Economics
“The financial system clearly misplaced momentum as Q1 progressed, at the same time as employment continued to roll alongside. So, at the same time as Canada will publish wholesome Q1 GDP development of roughly 2.5 per cent (versus 1.1 per cent stateside), that sturdy advance was weather-aided and doesn’t look sustainable. In truth, the general public sector strike heightens the chances that Q2 will publish a small decline (albeit the strike drag ought to show fleeting). In opposition to this backdrop, the BoC is predicted to stay on maintain, assuming inflation continues to recede and however their robust discuss on the potential of additional fee hikes.”
Commercial 7
Article content material
Marc Ercolao, TD Economics
“In the present day’s GDP numbers corroborate the BoC’s current steering that financial coverage could have to be ‘restrictive for longer’. This doesn’t essentially imply extra fee hikes are on the desk, however it does present additional proof that the beginning of fee cuts are much less more likely to happen in 2023. Our view is that the BoC will maintain the coverage fee into 2024 as lagged results of rate of interest hikes nonetheless want time to work their method by way of the financial system.
“The federal public service strike, affecting some 100,000 employees, enters into its tenth day and negotiations are nonetheless ongoing. By unfastened estimation, a strike of this period might shave 0.2 share factors off of April’s GDP. Nonetheless, as employees come again on the job, development in subsequent months can be boosted.”
Commercial 8
Article content material
Inhabitants increase proves wild card in Financial institution of Canada fee choice
Economist disputes assertion wages stoking inflation
Why a recession is perhaps simply what the physician ordered
Matthieu Arseneau and Alexandra Ducharme, Nationwide Financial institution of Canada Economics
“Whereas the quarterly advance was stable, the financial system misplaced momentum within the quarter. This poor hand-off to the second quarter is in step with our view that GDP will stall within the three months to June. The speed hikes have been very aggressive and can proceed to weigh on the financial system given the lag of their pass-through. As well as, the result of the continuing turmoil within the U.S. banking sector and its influence on credit score situations within the coming months stays unsure.”
“All of this thought of, we proceed to anticipate a sluggish financial system over the following 12 months which ought to translate into anemic development of 0.9 per cent in 2023 and 0.5 per cent in 2024. This, mixed with additional progress on inflation, ought to permit the Financial institution of Canada to start reducing charges within the last quarter of the 12 months.”
• E mail: gmvsuhanic@postmedia.com | Twitter: GSuhanic
Feedback
Postmedia is dedicated to sustaining a energetic however civil discussion board for dialogue and encourage all readers to share their views on our articles. Feedback could take as much as an hour for moderation earlier than showing on the positioning. We ask you to maintain your feedback related and respectful. We have now enabled e mail notifications—you’ll now obtain an e mail in the event you obtain a reply to your remark, there may be an replace to a remark thread you comply with or if a person you comply with feedback. Go to our Group Tips for extra data and particulars on find out how to modify your e mail settings.
Be part of the Dialog