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MNI: Canada GDP Beats Q1 Forecasts And Grows Again In April


Canada’s GDP growth beat forecasts in the first quarter and a flash April estimate showed a solid hand-off to the second, according to the last major data before the central bank’s June 7 decision on whether to pause for a third meeting or to hike interest rates again.

Output grew at a 3.1% annualized pace between January and March versus the market consensus for 2.5% and the Bank of Canada's 2.3% estimate. Statistics Canada also said Wednesday from Ottawa that GDP rose 0.2% in April, and while output stalled in March that also beat the market consensus it would contract 0.1%.

The reports show demand remains solid through the central bank's eight consecutive rate hikes through January aimed at cooling an overstretched economy. First-quarter improvements were led by a 10% annualized gain in exports and a 5.7% rise in household spending, while Canadians spent more on imports for the first time in three quarters. 

Growth was slowed as companies drew down their inventories and business investment fell for a third straight quarter with a 3.8% decline. Rate hikes are working to slow the country's stretched property market, with residential investment down 3.9%, the fourth consecutive decline. 

Households are also spending their leftover Covid relief checks with the savings rate fading to 2.9% from 5.8%, bringing it closer to the pre-pandemic rate of 2.1%.

The overall momentum still defies predictions of several major banks that Canada was headed to a recession this year. Other recent data including near record low unemployment and a surprise uptick in the last inflation report puts more weight on Governor Tiff Macklem's view that he may need to hike his 4.5% rate again because inflation may stick above his 2% target.

Investors have canceled bets on rate cuts in recent weeks and there has been some talk of a hike in the next few meetings, though officially all investors surveyed by MNI see the Bank holding rates at next week’s meeting. Inflation has already slowed to 4.4% from the peak of 8.1% seen last summer.

Another lingering question is how GDP and inflation will respond to a recent brief government strike and a current series of wildfires that could hurt Alberta energy output and activity in other provinces. 

MNI Ottawa Bureau | +1 613-314-9647 |
MNI Ottawa Bureau | +1 613-314-9647 |

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