Preliminary data from Statistics Canada indicates that the gross domestic product (GDP) expanded by 0.4 per cent in February, following a 0.6 per cent growth in January. These gains, particularly in sectors such as oil and gas, manufacturing, and finance, suggest a promising start to the year and mark the strongest growth since the early stages of the post-pandemic recovery in 2022.
The positive momentum in Canada’s economy comes amidst similar trends in the United States, where economic activity has also shown significant advances. As a result, traders have adjusted their expectations regarding the likelihood of a Bank of Canada rate cut in June. The recent data have led to increased optimism, with Canadian government bond yields rising and the Canadian dollar strengthening.
Analysts project that the industry-based numbers point to an annualized increase of 3.5 per cent in the first quarter of 2024, significantly outpacing earlier estimates. This growth trajectory suggests that the Bank of Canada may have more time before considering policy rate adjustments. Policymakers are closely monitoring data to ensure that the path towards the 2 per cent inflation target remains sustainable before making any changes to borrowing costs.
Recent developments, including easing inflationary pressures and population growth outpacing employment growth, have provided further justification for the Bank of Canada’s cautious approach. While Prime Minister Justin Trudeau’s government aims to reduce the temporary resident population, potentially impacting economic growth, it is clear that immediate rate cuts are not warranted.
Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, noted that while there is no urgency for immediate rate cuts, there is still room for a gradual reduction in interest rates starting in June. However, other analysts, such as Jimmy Jean of Desjardins Securities, caution that demographic factors may be masking underlying weaknesses in per-capita GDP growth, suggesting a more nuanced interpretation of the data.
Despite the positive overall growth figures, challenges persist, particularly in sectors such as oil and gas extraction, which experienced declines in recent months. However, industries like manufacturing, real estate, and health care have shown resilience and contributed significantly to economic expansion.
As the Bank of Canada prepares for its next rate decision in April, economists anticipate that policymakers will maintain policy rates at the current level for the sixth consecutive meeting. Strong GDP data prints, coupled with easing inflationary pressures, provide a compelling case for continued patience and vigilance in navigating the uncertain economic landscape.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients. Find out why.