Canada’s economy is poised to grow in the first quarter, dodging America’s fate

Latest growth numbers only bolster the case for a bigger Bank of Canada hike

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Canada will face growing economic headwinds with considerable momentum.

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On April 29, Statistics Canada reported that gross domestic product rose 1.1% in February, and the agency estimated that the economy likely grew 0.5% in March, suggesting that Canada rode the Omicron wave with relative ease.

It was not acquired at the end of last year. Many assumed that strict health restrictions in Ontario and Quebec during the winter months would kill economic activity, as they had done at previous times during the pandemic. The Bank of Canada cited uncertainty surrounding COVID-19 as one of the reasons it chose not to raise interest rates in January, even though inflation jumped well above the upper end of his comfort zone.

Today, the strength of the Canadian economy gives the central bank reason to accelerate the rise in interest rates. Earlier this month, policymakers said GDP likely grew at an annual rate of 3% in the first quarter, compared to an estimate of 2% in January. Statistics Canada’s monthly counts of economic production are calculated differently from its quarterly estimates, but the former generally agree with the latter. GDP rose about 0.5% from December to January, suggesting the quarterly growth rate will exceed 5%, economists said.

“Today’s GDP report reinforces the view that the momentum of the Canadian economy is unrelenting,” said James Orlando, senior economist at the Toronto-Dominion Bank, in a note. “Compared to our neighbor to the south and our global peers, Canada is clearly outperforming.

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Indeed, the first of three estimates of first-quarter growth in the United States by the Commerce Department this week showed the world’s largest economy contracted at an annual rate of 1.4%, surprising the most Wall Street forecasters, who were expecting an increase. Canadian bond yields rose after the release of the numbers from Canada, suggesting investors expect evidence of stronger growth to keep pressure on the Bank of Canada to raise its rate. benchmark at a relatively aggressive pace as it attempts to catch up with inflation.

“Pressure continues to mount for the Bank of Canada to release the monetary policy accelerator sooner,” Royal Bank of Canada economist Claire Fan told clients, adding that a second straight increase of a half point “seems increasingly likely”. in the central bank’s next policy announcement on June 1.

GDP was boosted by some predictable sources. Restaurants and hotels led the way, as the lifting of health restrictions led to a 15% increase in output in the restaurant and accommodation industry, Statistics Canada said. Oil producers and miners posted a 3.4% gain, the biggest since the end of 2020, as companies benefited from stronger demand and higher prices. Construction and “computer systems design,” a proxy for the digital technology industry, also posted notable increases.

The startling momentum could be tested in the coming months as a growing number of signals suggest that global inflation, ongoing supply disruptions and uncertainty surrounding the war in Ukraine could slow the recovery from COVID-19 recession. On April 28, Amazon.com Inc. announced that it had downgraded its outlook due to rising costs and falling demand for the products it sells online. And Bank of Canada Governor Tiff Macklem indicated in parliamentary testimony this week that he is wary of what China’s recent COVID-19 shutdowns portend for global growth and inflation. supply side.

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Indeed, it is not hard to find economists who believe that Canada and other major economies are preparing for another recession. But such speculation won’t stop the Bank of Canada from raising short-term interest rates, as Macklem told lawmakers he and his MPs would consider another half-point hike at their next meeting. to decide on the reference rate.

“The Canadian economy is in good shape,” he told the House Finance Committee on April 25. “She can bear higher interest rates. He needs higher interest rates.

• Email: [email protected] | Twitter: carmichaelkevin

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