Canada’s economy kept growing in the first quarter of the year, according to an early look at the data, but estimates show a slowdown may have begun last month.
Canada’s real gross domestic product (GDP) — the closely watched metric to gauge the health of the national economy — grew by 0.6 per cent in the first quarter of 2023, according to a flash estimate from Statistics Canada released Friday. At an annualized rate, that works out to 2.5 per cent.
The agency said GDP grew 0.1 per cent in February, down from initial expectations it would rise 0.3 per cent, as wholesale and retail trade as well as manufacturing all contracted.
That compares to 0.6 per cent growth in January, a strong sign of growth that surprised many economists.
Early estimates are expecting GDP ticked down 0.1 per cent in March.
The dip is expected to be driven by continued declines in wholesale and retail trade, in addition to mining and quarrying, Statistics Canada said.
The agency will update both the March and first quarter GDP figures with its official report for the periods on May 31.
While Canada’s economy rebounded from what was an essentially “flat” quarter for GDP growth to end 2022, economists said Friday that new data is showing efforts to slow the economy are starting to bear fruit.
Andrew Grantham, a senior economist with CIBC, said in a note to clients Friday morning that the latest data suggests that “after sprinting out of the gate to start 2023, the Canadian economy had already hit a wall by March.”
February’s GDP growth was fuelled in part by a growing public sector, the 13th month in a row of expansions here. But Grantham warned the public service strike stymying federal government services would put an end to that streak and see the economy take a temporary hit in the second quarter.
How will the Bank of Canada react?
Economists and market watchers warn of a possible recession on the horizon for Canada, typically defined as two or more consecutive quarters of negative GDP growth.
The Bank of Canada, which raised interest rates rapidly over much of the last year in an effort to cool the economy and tame high inflation, has warned the country might be set for a couple quarters of negative growth in 2023.
Grantham noted that the 2.5 per cent annualized growth in the first quarter was just above the central bank’s estimates of 2.3 pre cent, so policymakers likely won’t be too put off by the latest figures.
While inflation has shown signs of cooling in recent months, dropping to 4.3 per cent annually in March, Bank of Canada governor Tiff Macklem has lately signalled that rates might need to stay higher for longer — or even rise — to get inflation back down to the central bank’s two per cent target.
Nathan Janzen, assistant chief economist at RBC, said that signs the economy was slowing heading into the second quarter of the year should be enough to keep the central bank from raising interest rates again in the near future, but that doesn’t mean it can lower its policy rate, either.
“Inflation is also still too firm to justify a quick shift to cuts, even with the economy showing signs of softening,” he wrote in a note Friday.
— with files from The Canadian Press