What's next for the Bank of Canada?
Canada’s economy grew by more than expected in January, expanding at a rate of 0.6% in an indication of its continuing – and surprising – strength.
New preliminary data released by Statistics Canada on Thursday also showed that gross domestic product (GDP) likely increased by 0.4% in February, meaning that the first two months of the year marked the economy’s strongest growth since 2022.
Economists had anticipated January growth of 0.4%, but that was topped thanks in part to the end of public sector strikes in Quebec and a resulting rebound for educational services, according to StatCan.
Bank of Montreal (BMO) chief economist Doug Porter said the data showed GDP was “in a much firmer state than widely expected,” with the economy appearing to have been boosted by strong tailwinds in the opening months of 2024.
The Bank of Canada is widely expected to introduce at least one interest rate cut at some point this year – but the “surprisingly healthy” start to the year could complicate its timeline, according to Porter.
Real gross domestic product (#GDP) grew 0.6% in January 2024.
— Statistics Canada (@StatCan_eng) March 28, 2024
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“Our call for a June rate cut still hinges on the coming CPI reports,” he said, “but if this strength in activity is close to replicated into Q2, the BoC will see much less urgency to cut rates any time soon.”
Royal Bank of Canada (RBC) economist Claire Fan said that while the economy’s performance had been significantly stronger than expected at the beginning of the year, advance estimates should be taken “with a grain of salt” because of their potential for substantial revision down the line.
With the unemployment having recently ticked upwards to 5.8%, Fan said labour market conditions are continuing to weaken – and that RBC still expected the central bank to begin cutting interest rates in June.
Eighteen out of 20 sectors posted economic growth in January, according to StatCan, with the real estate and rental and leasing sectors posting their third consecutive monthly increases.
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