(Ottawa) The Canadian economy grew faster than expected in the first three months of the year and likely also expanded in April, fueling speculation that the Bank of Canada may raise rates again of interest.
Real gross domestic product grew at an annualized rate of 3.1% in the first quarter of 2023, Statistics Canada reported Wednesday.
The latest data shows that growth exceeded the federal agency’s own forecast, which had targeted 2.5% growth for the quarter. Statistics Canada’s preliminary estimate now suggests the economy grew 0.2% in April, after remaining flat in March.
The economy’s continued resilience raises the likelihood of another interest rate hike, economists have warned, as the Bank of Canada nears its next monetary policy decision next week.
“The string of strong data undoubtedly increases the odds that the Bank of Canada will have to return to the rate hike well, and even gives it a chance to act upon its decision next week,” observed the economist in Bank of Montreal chief Douglas Porter in a note to clients.
But Mr. Porter and other commercial bank economists have indicated that the central bank may also postpone a decision to raise rates again until this summer.
“However, given the uncertain backdrop and the possibility that inflation may have fallen sharply in May, the Bank of Canada may choose to wait a little longer and signal that it is open to a hike in July if this strength persists. »
The federal agency says growth in exports and household spending helped boost growth in the first quarter.
At the same time, slower inventory accumulation and lower household and business investment in machinery and equipment weighed on growth.
The Canadian economy managed to continue to beat expectations, although the Bank of Canada hoped that higher interest rates would lead to a larger decline in consumer and business spending.
Household spending figures show that spending on goods and services increased in the first three months of the year, after registering minimal growth in the previous two quarters.
However, Statistics Canada noted that disposable income fell for the first time since the fourth quarter of 2021. The federal agency says disposable income fell by 1%, largely due to the expiry of government measures. aimed at helping people cope with inflation.
The central bank halted its rate hike cycle earlier this year, keeping its key rate at 4.5%, its highest level since 2007.
But central bank governor Tiff Macklem signaled that the bank was still trying to determine whether interest rates were high enough to stifle inflation.
Annual inflation rose slightly to 4.4% in April, remaining well above the central bank’s 2.0% target.
