Achi news desk-
Canada’s economy lost momentum after a tremendous start to the year, reinforcing economists’ expectations that the Bank of Canada is on track to cut interest rates in the coming months.
Statistics Canada reported on Tuesday that real gross domestic product rose 0.2 percent in February. That followed an increase of 0.5 per cent in January.
“Today’s GDP report confirmed our expectations that January’s surge in output was temporary, and in no way marked an inflection point for the Canadian growth backdrop which remains very weak,” said RBC economist Claire Fan, in a client note.
Looking ahead, the federal agency says its advance estimate for March shows real GDP essentially unchanged for the month.
Based on the preliminary figure, the Canadian economy grew at an annual rate of 2.5 percent in the first quarter of 2024.
Although the economy continues to expand, economists say the latest data reinforces the idea that growth is slowing as higher interest rates weigh on consumer and business spending decisions.
That will likely be good news for the Bank of Canada, which is looking for continued evidence that the economy and inflation are responding to tighter monetary policy.
Governor Tiff Macklem said earlier this month that the central bank is already seeing the right conditions to start lowering its policy rate by five percent. But he said he wanted to see those conditions maintained to ensure that inflation actually went down to the bank’s two per cent target.
“Losing momentum as the quarter progresses is the biggest takeaway from this report. That puts additional pressure on the BoC to start cutting as soon as June,” wrote BMO’s Benjamin Reitzes, managing director of Canadian rates and macro-strategist.
Sluggishness in the Canadian economy is also evident in the labor market, where job creation has lagged population growth. In March, the unemployment rate increased to 6.1 percent.
Reitzes warned in its client note, however, that the June rate cut still depends on April inflation data, which is expected to be released in a few weeks.
Canada’s inflation rate came in at 2.9 percent in March, up slightly from the previous month.
Statistics Canada’s report on Tuesday shows that 12 of 20 sectors showed growth in February.
Service-producing industries increased 0.2 percent, helped by the transportation and warehousing sector which rose 1.4 percent, as rail transportation grew 5.5 percent with activity returning to normal after January’s freezing temperatures in Western Canada.
Air transport also increased by 4.8 per cent in February, driven by growth in international travel as some airlines increased their capacity to Asia.
Statistics Canada reported that goods-producing industries were essentially unchanged.
The mining, quarrying, and oil and gas extraction sector grew by 2.5 percent in February as oil and gas extraction increased by 3.3 percent, partially offsetting a contraction in January. Mining and quarrying (excluding oil and gas) rose 1.9 per cent.
The utilities sector fell by 2.6 per cent, while the manufacturing sector fell by 0.4 per cent.
This report was first published by The Canadian Press on April 30, 2024.
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Post-February GDP report shows Canadian economy losing steam – BNN Bloomberg appeared first on Canada News Media.
