Home Economy GDP forecasts mixed after Bank of Canada rate cut

GDP forecasts mixed after Bank of Canada rate cut

by SuperiorInvest

Some still say Canadians will have to wait until July to get rate relief.

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Canada's economy slowed progressively through the first part of 2024, but economists are divided on whether that is enough for current and prospective homeowners to get any mortgage relief next week.

Statistics Canada said Friday that 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 March real gross domestic product (GDP) was unchanged from 0.2 percent in February, while preliminary data for April suggested growth of 0.3 percent.

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

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

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Nathan Janzen, deputy chief economist at Royal Bank of Canada, said the GDP data “removes the last potential barrier” to a cut in June.

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

“After taking into account all revisions to previous data, the level of GDP in the fourth quarter was slightly higher than before. Despite the negative first quarter surprise, the details look positive,” he said in a note. “The preliminary estimate of monthly GDP data suggested that GDP rose 0.3 per cent (month over month) in April, which would put GDP on track to slightly exceed our and the Bank of Canada's forecasts for growth of 1.5 percent annualized in the second quarter.”

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James Orlando, senior economist at Toronto-Dominion Bank, also anticipates a cut in July, although there may be some consternation over the decision.

“We expect (the Bank of Canada) to keep rates steady next week and use the meeting to prepare for a rate cut in July,” he said in a note. “That said, expect fireworks as (the Bank of Canada) could make any decision in this case.”

Simon Harvey, head of currency analysis at Monex POS Solutions Group Inc., said the GDP data “killed the economic reacceleration argument” that could prevent the Bank of Canada from cutting in June.

“We see no reason for (the Bank of Canada) not to cut rates next week,” he said in a note. “Furthermore, based on the underlying trend of the data, we believe there is a considerable risk that (the bank) will need to embark on consecutive rate cuts over the summer, unless the anomalous rise in employment in April is a sign of a imminent improvement in economic momentum.”

Harvey said he expects Canadians to see two rate cuts over the next three monetary policy meetings.

“Failing to do so risks maintaining an overly restrictive policy stance for too long, resulting in a more aggressive easing cycle towards the end of the year,” he said.

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Randall Bartlett, senior director of Canadian economics at the Fédération des caisses Desjardins du Québec, said the data “should be music to the ears” of Canadians eager for mortgage relief.

“Combined with still weak survey data and a high number of corporate bankruptcies, we continue to view the bank as likely to begin cutting interest rates at its next meeting in June,” he said.

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Douglas Porter, chief economist at the Bank of Montreal, said Canada's economy “produced moderate underlying growth” to start 2024, but it was well below the Bank of Canada's previous estimates of 2.8 per cent for the first quarter. .

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

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