Central bank now likely to lower rates next week, says RBC
Canada’s economy expanded at a smaller-than-expected rate of 1.7% in the first quarter, with a sixth per-capita GDP (gross domestic product) decline in seven quarters giving the Bank of Canada the green light to start lowering rates, according to a top bank economist.
Statistics Canada data released on Friday showed quarterly growth missed forecasts, coming in cooler than analysts’ expectations of 2.2%, with GDP growth in Q4 revised downward from the initial 1.0% reported to an annualized rate of 0.1%.
Royal Bank of Canada (RBC) assistant chief economist Nathan Janzen said in a note that the data showed a continuing trend of per-capita GDP declines dating back to 2022’s third quarter, interrupted only by a slight upward revision to data for Q1 2023.
He said the unexpectedly sluggish first quarter “likely removes the last potential barrier” preventing the Bank of Canada from lowering interest rates – with a cut now likely in its June 5 announcement.
“The economic data still hasn’t deteriorated in a way that is forcing urgent BoC action, but a slow bleed over the last two years has left per-capita output back at 2016 levels (and little-changed from a decade ago), the unemployment rate is up a percent from a year ago, and month-over-month increases in the BoC’s preferred inflation measures are running below the central bank’s 2% inflation target,” he wrote.
“Given that backdrop, there is little reason for the Bank of Canada to wait longer to begin at least a gradual easing cycle and continue to look for a 25-basis-point cut to the overnight rate next week.”
Total domestic spending by Canadian consumers, businesses and governments ticked up by 2.9% in the first quarter, StatCan said, boosted by a 3% jump in consumer spending mostly driven by higher spending on services.
Household disposable incomes increased by 7.4%, with business investment up by 3.5% and consumers recording a higher saving rate than the previous quarter.
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