The Globe & Mail: Canada's GDP Rises 0.3% in April

The Globe & Mail: Canada’s GDP Rises 0.3% in April

The Globe and Mail reported, based on data from StatsCanada, a 0.3% increase in Canada’s GDP for April. This moderate uptick signals an excellent start to the quarter, suggesting resilience amid global economic uncertainties. While seemingly modest, growth helps instill consumer confidence and market stability. It reinforces the narrative that Canada’s economy is steadier despite challenges with inflation and global economic shifts.

• Canada’s GDP grew 0.3% in April.
• Growth is likely to be 0.1% in May.
• Money markets increased the chance of a rate cut in July by 45%.

Some Sectors Experienced Growth, While Saw Declines

According to StatsCanada, 15 out of 20 sectors experienced growth in April. The Canadian economy saw its fastest growth since it increased 0.5% in January. The wholesale trade industry saw a noteworthy expansion of 2%, bouncing back from a previous decline. This growth was primarily driven by an impressive 8.0% surge in motor vehicle and parts wholesaling. Furthermore, the mining, quarrying, and oil and gas extraction sectors experienced a 1.8% increase, accompanied by a 6.9% rise in support activities for these industries. Additionally, manufacturing made positive strides, with 0.4% growth, mainly attributed to a 0.6% increase in durable goods manufacturing. The arts, entertainment, and recreation sector also improved, with 0.9% growth, primarily fueled by spectator sports events like the NHL playoffs.

Although many industries experienced growth in April, some faced challenges. The construction sector saw a 0.4% decrease, primarily in residential building construction, which dropped by 2.3%. This marked the most significant decline since May 2023, impacting the sector’s overall performance. Additionally, the non-durable goods manufacturing sector, namely petroleum and coal product manufacturing, decreased by 3.6% as more facilities underwent maintenance.

Some Growth Indicates a Stable Economy

A 0.3% increase in the country’s GDP indicates a stable economy. According to Reuters, growth was supported by a significant 15% YoY rise in company revenues, surpassing the industry’s projected growth of 0.3%. Moreover, the profit margin rose to 22% from 19% in the previous year, demonstrating enhanced operational effectiveness. These figures highlight a robust economic environment and emphasize the Canadian industries’ ability to adapt to market fluctuations.

StatsCan’s initial estimate for May indicates a 0.1% increase in GDP, driven by growth in manufacturing, real estate, finance, and insurance but offset by retail and wholesale trade declines. However, this data may change when the following GDP figures are released on July 31.

The performance of Canada’s GDP in April was aligned with analyst predictions, reinforcing the accuracy of economic forecasts. Analysts had anticipated a 0.3% growth thanks to contributions across multiple sectors, including wholesale trade, mining, and manufacturing. This growth trajectory suggests the Canadian economy is maintaining momentum, which is crucial for ongoing economic strategies and policy-making. Moreover, the increase in GDP by 1.1% annually further underscores the positive outlook for Canada’s economic landscape.

Economists See Rate Cuts Pushed Out Til September

According to Douglas Porter, Economist at BMO, this moderate increase in GDP today could potentially push the next rate cut to September. The data from Friday suggests that the Canadian economy is on track to surpass the Bank of Canada’s 2024Q2 annualized growth forecast of 1.5%. However, GDP only rose by 1.7% in Q1 2024, which fell short of the bank’s 2.8% growth rate projection.

Andrew Grantham, a senior economist at CIBC Capital Markets, suggests that the slower growth in May’s GDP may be attributed to supply issues or data volatility rather than demand pressures, which could impact any increase in inflation. Initially, there was a 75% chance of a rate cut, but this was reduced to 40% after the release of inflation data. Following the publication of the GDP numbers, the likelihood of a rate cut slightly increased to 45%.

Clare Fan, an economist at RBC, says in her most recent note that the latest GDP report for Canada revealed that various industries experienced growth in output during April. Still, this progress was short-lived, as it declined in May. Despite the increase in Q2 2024, the output per person has decreased 7 out of the last 8 quarters. The economy still has an oversupply, which means it can expand without causing inflation. RBC predicts that the BoC will continue to lower interest rates, with another 75 bps of cuts to the overnight rate by the end of the year. Interest rates will continue at levels that may impede economic growth and dampen expectations of any increase in per capita GDP until Q4 2024.

Marc Ercolao, an economist at TD, mentioned in his economic analysis that the April GDP data had met expectations, maintaining a steady growth trajectory for Q2 2024. The Canadian economy kicked off the second quarter on a positive note, with early indicators pointing towards consistent growth for the quarter, mirroring the 1.7% growth seen in the first quarter. TD believes the Bank of Canada (BoC) will be content with this report. Despite no significant surge in growth, the Bank can find solace in realizing its Q2 growth projections. The stable GDP figures will enable the Bank to shift its focus towards inflation, particularly with the commencement of its interest rate reduction cycle. It is anticipated that the BoC will hold off on cutting interest rates at the upcoming meeting, opting to make adjustments in September after evaluating inflation and growth trends.

US PCE Keeps Hope Alive For Further Cuts to Canadian Mortgage Rates

The recent 0.3% rise in Canada’s GDP for April is more than just a single statistic. It shows how Canada’s economy can withstand challenges and adapt. This growth indicates that both consumers and businesses in Canada are confident, which is favourable for the economy’s short-term growth and consumer spending. Additionally, with today’s lower-than-expected 2.6% personal consumption expenditure (PCE) inflation for May in the US, cuts to Canadian mortgage rates are still in the pipeline, keeping borrower hopes alive for lower payment shock at their next mortgage renewal. 

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