GDP has forecasts mixed on Bank of Canada rate cut

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Canada’s economy progressively slowed throughout the early part of 2024, but economists are divided over whether that’s enough for prospective and existing homeowners to get some mortgage relief next week.

Statistics Canada on Friday said Canada’s economy grew at an annualized rate of 1.7 per cent in the first quarter of 2024, with household spending driving the growth. The agency also said real gross domestic product (GDP) for March was unchanged from 0.2 per cent in February, while preliminary data for April suggests 0.3 per cent growth.

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Katherine Judge, a senior economist at CIBC Capital Markets, said the latest data shows economic “momentum faded as the quarter progressed,” and that further signals a rate cut by the Bank of Canada at its next decision on June 5.

“The Bank of Canada remains on track to cut interest rates in June given the cooling seen in inflation and the fading of momentum in GDP over the quarter,” she said in a note.

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Nathan Janzen, assistant chief economist with the Royal Bank of Canada, said the GDP data “removes the last potential barrier” for a June cut.

But Olivia Cross, a North America economist at Capital Economics Ltd., believes the economic data is not yet weak enough for a June cut, so she expects interest rates to come down in July.

“After all the revisions to previous data are accounted for, the level of GDP in the fourth quarter was a bit higher than before. Despite the downside surprise in the first quarter, the details look positive,” she said in a note. “The preliminary estimate of the monthly GDP data suggested that GDP rose by 0.3 per cent (month over month) in April, which would put GDP on track to slightly outperform both our and the Bank of Canada’s forecasts for growth of 1.5 per cent annualized in the second quarter.”

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James Orlando, a senior economist at Toronto-Dominion Bank, is also anticipating a July cut, though there could be some consternation over the decision.

“We expect the (Bank of Canada) will hold rates steady next week and use the meeting to tee-up a rate cut in July,” he said in a note. “That said, expect fireworks as the (Bank of Canada) could go either way with this one.”

Douglas Porter, chief economist at the Bank of Montreal, said Canada’s economy “churned out some moderate underlying growth” to start 2024, but was far below previous Bank of Canada estimates of 2.8 per cent for the first quarter.

“For the Bank of Canada, we believe the main message is that the output gap is widening, as reinforced by a less-tight job market, modestly increasing the chances of a rate cut next week,” he said in a note.

• Email: bcousins@postmedia.com

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