OTTAWA—The Canadian economy expanded at an annualized rate of 1.7 percent in the first quarter, missing forecasts, and real gross domestic product likely rose 0.3 percent on a monthly basis in April, data showed on May 31.
The data prompted financial markets to increase bets on a 25 basis point interest rate cut next week to almost 80 percent from 66 percent earlier.
The quarterly growth rate was slower than the 2.2 percent pace forecast by analysts in a Reuters poll, as well as the Bank of Canada’s (BoC’s) 2.8 percent forecast. Fourth-quarter GDP growth was revised to an annualized rate of 0.1 percent from 1.0 percent reported initially, Statistics Canada data showed.
The GDP report shows that Canada’s economy did not rebound from a soft patch last year as strongly as data initially suggested, and may convince the central bank to start lowering borrowing costs in June.
The loonie rose 0.29 percent to trade at 1.3638 per U.S. dollar, or 73.32 U.S. cents, by 1241 GMT. Two-year Canadian government bond yields fell 5.4 basis points to 4.321 percent.
Friday’s report is the last major data to be released ahead of the BoC’s interest rate announcement on June 5, when three-quarters of the 29 economists polled by Reuters expect a 25 basis-point cut.
Growth in the first quarter was driven by higher household spending on services, Statscan said, adding that slower inventory accumulations moderated overall growth.
On a per capita basis, household final consumption expenditures edged up 0.1 percent in the first quarter, after three quarters of declines, the statistics agency said. Per capita spending on services increased 0.5 percent, while per capita spending on goods declined for the tenth consecutive quarter.
On the month, GDP growth was flat in March from February, matching forecasts. While both goods-producing and services-producing industries stayed essentially unchanged, the construction subsector recorded a 1.1 percent rise in March, the largest monthly growth rate since January 2022, Statscan said.
In an advance estimate for April, Statscan said GDP likely rose 0.3 percent as increases in manufacturing, mining, quarrying, and oil and gas extraction and wholesale trade were partially offset by decreases in utilities.
April’s forecast means the economy started the second quarter on a positive note. The BoC, in economic forecasts released last month, said it expects a 1.5 percent annualized growth rate in the second quarter.
After the BoC held its key policy rate a 23-year high of 5 percent in April, Governor Tiff Macklem said a cut in June was possible if inflation continued to cool towards a 2 percent target.
