Canada’s economy held steady in March, ending the quarter with annual growth of 3.1%, supporting a third key interest rate hike on Wednesday.
Posted at 7:00 pm.
“The 3.1% GDP growth is respectable, especially since the first month of the year has been hampered by health measures,” National Bank economists commented after publishing the latest data from Statistics Canada on the development of the economy.
In March, Canada’s economy grew 0.7%, ending the first three months of the year at an annual rate of 3.1%. This is much lower than expected, which exceeded 5%, but the picture is still positive. Domestic demand, including consumer spending and residential investment, has driven the economy since the start of the year. Non-residential investment, particularly in Quebec, contributed to the growth.
Even though most of the federal aid programs have ended, the household savings rate continues to rise and remains above its pre-crisis level, giving them a cushion to counter inflation and rising interest rates.
Preliminary estimates from Statistics Canada point to a more modest 0.2% growth for the month of April.
At 3.1%, the economy’s current growth rate is in line with the Bank of Canada’s latest forecast monetary policy report (3%).
since posting monetary policy report On April 13, almost all economic indicators reinforced the need to raise interest rates.
Jocelyn Paquet, Economist at Laurentian Bank
Like many of his colleagues, the economist expects the Bank of Canada to raise interest rates for the third time, by 50 basis points, this Wednesday.
Nothing in today’s report [sur le PIB] It does not allow the central bank to slow down its strength in the short term, ”as the economists of the National Bank believe.
Towards a slowdown in inflation
The key rate could therefore rise from 1% to 1.5% in an effort to slow inflation, which is still running fast, to 6.8% in April.
At Laurentian Bank, forecasters are of the opinion that inflation could have peaked in April and started to slow.
In the US, prices continued to rise, but the pace of increase slowed in April. Prices rose 6.6% in March, compared to a 6.3% jump in April.
While most observers expect a fourth Bank of Canada rate hike to be necessary in July, the outcome is less clear. It is possible to pause, because the real estate market, in particular, appears to be reacting quickly to the increase in the cost of money. ‘Change in tone [de la banque centrale] “Possibly then, as the decline in activity in interest rate sensitive sectors will cool the economy,” said Randall Bartlett, senior director of Canadian economics at Desjardins.
Growth in multiple sectors
According to Statistics Canada, household spending rose 0.8% in the first quarter, marking the third consecutive quarterly increase.
Durable goods spending rose 2.6% in the first quarter, driven by a 16.1% increase in spending on new vehicles and a 3.5% increase in new trucks, vans and SUVs.
However, Statistics Canada noted that despite the increases, auto spending remained below pre-pandemic levels as supply chain issues continued to weaken the sector.
Residential construction is up 4.3%, with renovation spending up 9.3%, resale costs up 4.6% and new home building up 0.2%.
Business investment in non-residential buildings rose 2.9% and machinery and equipment 0.9% in the quarter, while spending on engineering structures rose 3.5%.
Statistics Canada also said employee compensation rose 3.8% on a nominal basis for the quarter. Excluding the third quarter of 2020, the federal agency indicated that this was the largest quarterly increase since the second quarter of 1981.
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