4/30/2024
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Posted in Canadian Economy and Interest Rates by Vanguard Realty | Back to Main Blog Page
Canada’s quarterly gross domestic product edged up 0.2% in February, according to Statistics Canada data published April 30, suggesting the Bank of Canada may have a reason to cut rates in the summer.
Statistics Canada says economic growth in February was fuelled by growth in transportation and warehousing industries thanks to a rebound in retail transportation rates following a cold snap in January across Western Canada. Meanwhile air transportation rose as some airlines boosted their flight capacity to Asia leading up to the Lunar New Year.
In Statistics Canada’s ‘flash’ estimate of March’s figures, it found real GDSP was essential unchanged, with increased growth in real estate and utilities offset by drops in manufacturing and retail trade. The official rate for March will be released on May 31.
So far, Statistics Canada says, the Canadian economy expanded a total of 2.5% annualized rate in 2024’s first quarter.
Economists largely concluded following the data release that the Bank of Canada is in a good position to begin slashing interest rates as soon as the summer, citing January and February’s economic growth as sluggish and relatively contained.
Benjamin Reitzes, managing director of Canadian rates for BMO and macro strategist for fixed income strategy, said the data for Q1 of 2024 will put additional pressure on the Bank of Canada to start cutting rates as soon as June. However, he noted that consumer price index data, as well as the economic situation in the US, may change matters.
“Unfortunately, persistently strong U.S. data are making things increasingly complicated for the Bank, as it appears that the Fed could be on hold for a while,” Reitzes wrote in a research note on April 30.
In the U.S., Federal Reserve Chair Jerome Powell, has signaled over the past month that stronger-than-expected inflation readings may force him to pause rate cuts until the fourth quarter of 2024, if not later. The implications may be felt by the Bank of Canada, which often moves in lockstep with its U.S. counterpart.
Matthieu Arsenau, deputy chief economist at the National Bank of Canada, concurred that the relatively sluggish growth of the Canadian economy shouldn’t give the Bank of Canada a reason to retain what he described in a research note as an “overly strictive monetary policy.”
According to the Bank of Canada’s last monetary policy estimate in April, the Canadian economy was expected to grow 2.8% in the first quarter of 2024, higher than actual figures.
“Let us hope those developments will convince the central bank to cut rates this summer,” he wrote in his research note. “Given the lag in the transmission of monetary policy, the governing council risks doing too much damage to the economy in the coming months.”
According to Marc Ercolao, an economist at TD, the question of exactly when the Bank of Canada may lower interest rates is still up in the air. In a research note, he said market pricing for a rate cut is split down the middle between June or July.
“We lean towards the latter as it will give the Bank slightly more time to ensure that inflationary trends are durable,” he wrote.
Source: Canadian Mortgage Trends
Bank of Canada, Bank of Canada Benchmark Rate, Interest Rate Forecast, Interest Rates
