MNI: Canada Q1 GDP Lags Forecasts After Stalling In Q4
Canada's gross domestic product grew less than expected in the first quarter and the fourth quarter was marked down to show output stalled, with the last major data before the Bank of Canada's June 5 rate decision in line with policymakers' view a cooling economy may allow them to cut the highest borrowing costs in decades.
Output grew at a 1.7% annualized pace in Statistics Canada's report Friday from Ottawa, less than the Bank of Canada's 2.8% estimate and the 2.4% market consensus. The fourth quarter was also reduced to 0.1% from an earlier 1.0% reading. Monthly figures were mixed as the first quarter ended with GDP unchanged in March, matching expectations, while the flash estimate for April showed a 0.3% increase.
Household spending led the first quarter advance with a 3% annualized gain with more spending on telecommunications and travel services. Exports climbed 1.9% led by precious metals, slightly ahead a 1.5% rise in imports. Slower inventory accumulation was a drag on growth, StatsCan said.
The figures also showed signs of modest inflation that Governor Tiff Macklem said is key to whether he lowers borrowing costs next Wednesday. The overall GDP price deflator fell 0.3% in the first quarter led by export prices, and prices for household final consumption posted the smallest increase since the second quarter of 2020 at 0.5%. The April flash figure suggests decent growth ahead, but that's in line with the Bank's April projection the economy will pick up at the same time inflation slows towards its 2% target next year.
Before the GDP report about two-thirds of economists predicted a June rate cut but others see that being deferred until the following meeting in July. Governor Macklem has said the timing of a rate cut depends mostly on seeing evidence that trend inflation is settling back at his 2% target. Headline inflation has been within the Bank’s 1% to 3% target band over the last four months and both of its preferred core measures have moved below 3% for the first time since the pandemic rebound.
Figuring out slack in the economy has been complicated by record immigration and many private economists have pointed to a long spell of falling per capita GDP as evidence lower interest rates are justified. StatsCan said that per capita household spending rose 0.1% in the first quarter following three prior declines.