Economy
Canada’s economy stumbles as GDP grows less than expected
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The economy was nearly stagnant in February and is expected to contract in March on the back of the nation’s largest strike.
The Canadian economy grew less than expected in February from the previous month and is expected to shrink in March, according to data that back up the central bank’s plans to keep interest rate hikes on hold.
February gross domestic product gained 0.1 percent from January, less than the 0.2 percent increase forecast by analysts, after an upwardly revised 0.6 percent expansion in January, Statistics Canada said on Friday. March GDP was most likely down 0.1 percent, Statscan said in a preliminary estimate.
The flash estimate for March, which may change when a final tally is released next month, means the economy likely grew 2.5 percent on an annualized basis in the first quarter. The Bank of Canada has forecast a 2.3 percent rise in real GDP in the first quarter.
“The Canadian economy looks to have stumbled in the early spring after a sprinting start to the year,” said Doug Porter, chief economist at BMO Capital Markets.
The largest strike in Canadian history, now in its 10th day, will affect this month’s growth, analysts said, with the overall impact being a weaker start to the second quarter than had been previously expected. The strike by federal government workers represented by the Public Service Alliance of Canada is affecting services ranging from tax returns to passport renewals.
“Against this backdrop, the Bank of Canada is expected to remain on hold, assuming inflation continues to recede and notwithstanding their tough talk on the possibility of further rate hikes,” Porter said.
The central bank, which had raised interest rates at a record pace over the past year to cool the economy and bring prices down, was the first major central bank to pause its tightening campaign and said it would not raise rates if inflation continued to ease as expected.
The bank this month left its key policy rate at a 15-year high of 4.5 percent for a second time in a row but struck a hawkish tone, playing down market expectations for a cut this year as the risk of a recession diminished.
The bank expects positive but weak growth during the remaining three quarters of this year. At its meeting this month, it even discussed raising rates because of stronger-than-expected growth, a tight labour market and concerns about inflation in the services sector.
“While a weakening economy should prevent policymakers pulling the trigger on another interest rate hike, we don’t see cuts forthcoming until early next year,” said Andrew Grantham, senior economist at CIBC Economics
Canada’s goods-producing sector expanded 0.1 percent in February while the service-producing sector also posted a 0.1 percent rise.
February’s gains were helped by growth in the public, construction, finance and insurance sectors while the wholesale and retail trade sectors were drags.
In March, GDP was likely impacted by decreases in the retail and wholesale trade sectors, Statscan said.
The Canadian dollar was trading 0.3 percent lower at 1.36 to the greenback, or 73.37 US cents, after touching its weakest value in one month.
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NEW DELHI — India is set to release data on Wednesday that is expected to show the economy grew by 5% in the January-March quarter from a year earlier, accelerating from 4.4% in the previous quarter due to steady urban demand and government spending.
The median forecast from a Reuters poll of economists hinged on the robust performance of services like travel and retail, and the boost given to demand by falling food prices and the drop in oil prices globally.
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Moving forward, India could be at the mercy of a potential global slowdown.
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“Slowing global growth, protracted geopolitical tensions and a possible upsurge in financial market volatility” could pose downside risks to the economic growth, Reserve Bank of India, the central bank, warned in its annual report on Tuesday.
The last official estimate for the full 2022/23 fiscal year put growth at 7%, though that could be revised when the GDP data is released on Wednesday at 1200 GMT. Some private economists reckoned growth in the year to March 31 could turn out around 6.8%.
During the March quarter, high frequency indicators showed that a rise in urban incomes had boosted sales of expensive cars, Apple mobile phones, and air travel.
The performance looks less impressive considering that the economy was still working through the tail-end of the pandemic during the previous year.
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Farm and manufacturing workers suffered flat growth in real wages due to high inflation, and that kept sales of motorbikes, low-end consumer goods and railway traffic below pre-pandemic levels.
Prime Minister Narendra Modi remains widely popular after nine years in power, but his Bharatiya Janata Party lost assembly elections in the southern state of Karnataka this month as the opposition Congress party promised to step up subsidies for households hit by inflation and unemployment.
Modi must call for a national election by early 2024, and there a several more state polls due before then.
Lack of good paying jobs remains a major issue among the youth as reflected in unemployment rate rising to 8.11% in April and more workers joining the workforce, according to Mumbai-based think tank Centre for Monitoring Indian Economy.
(Reporting by Manoj Kumar; Editing by Simon Cameron-Moore)
Economy
Canada's economy grew by more than expected in first quarter, upping odds of rate hike next week – CBC.ca
The Canadian economy grew at an annualized rate of 3.1 per cent in the first quarter of 2023, Statistics Canada reported Wednesday.
The latest data shows growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy grew by 0.2 per cent in April, after remaining flat in March.
The ongoing resilience in the economy will likely spur discussions of a potential rate hike, as the Bank of Canada is expected to make its next interest rate announcement next week.
The relatively strong GDP showing had investors increasing the odds of a rate hike when the central bank meets next week. Prior to the GDP numbers, trading in investments known as swaps was implying a litle over a one-in-four chance of a hike.
Now, those odds are better than one-in-three.
Statscan says growth in exports and household spending helped spur growth in the first quarter. On the other side of the ledger, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.
Tuan Nguyen, an economist with consulting firm RSM Canada, says the GDP numbers “blew past expectations.”
“After a slow final quarter of last year, the Canadian consumers and businesses came out strong in the first quarter, defying rising recession concerns that most market participants have been talking about,” Nguyen said. “There is no doubt that the data pointed to a hot economy, explaining why underlying inflation has remained elevated.”
Stubbornly high inflation
The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.
The household spending figures show spending up on both goods and services in the first three months of the year, after minimal growth in the previous two quarters.
However, the report notes disposable income fell for the first time since the fourth quarter of 2021. The federal agency says disposable income declined by one per cent, largely due to the expiration of government measures aimed at helping people cope with inflation.
The central bank paused its rate-hiking cycle earlier this year, keeping its key interest rate at 4.5 per cent — the highest it’s been since 2007.
But the central bank’s governor, Tiff Macklem, has signalled that the bank is still trying to figure out if interest rates are high enough to quash inflation.
The headline inflation rate ticked up slightly to 4.4 per cent in April, remaining well above the central bank’s two per cent target.
The Canadian Press
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