The first quarter forecasts for Canadian economy have shown a strong performance this year, as positive gains were reported in the first 2 months. The positive first quarter forecasts are due to the Bank of Canada’s decision to take a patient approach towards interest rate cuts.
First Quarter Forecasts for the Canadian Economy
The preliminary data shows that the gross domestic product (GDP) increased by 0.4% in February. According to the reports by Statistics Canada, this growth was majorly due to various sectors like oil and gas, manufacturing, and finance. This increase was following a 0.6% growth in January, going over the expectation of 0.4% increase according to a Bloomberg survey of economists.
The growth of January is mainly due to a recovery in the education sector after the strikes that were happening in Quebec ended. The GDP for December was revised downwards to a 0.1% contraction. When the gains in January are combined with the flash estimate for February, it shows the possibility of strong growth since early 2022, when the economy was recovering from the pandemic.
Based on industry figures and the Canadian Economy’s First Quarter Forecasts, the economy is on the correct path for a 3.5% annualized increase in the first quarter of 2024, which is assuming that the output in March remains steady. This increase will be a significant jump from the 1% growth seen between October and December. This rise will go beyond both the estimation where it was predicted as 1% from a Bloomberg survey and 0.5% forecast from the Bank of Canada.
The report released on Thursday shows strong economic momentum, giving the Bank of Canada more time before considering lowering policy rates. However, it is important to note that even though the Canadian Economy’s First Quarter Forecasts have been positive, policymakers are still waiting for additional data to ensure that the path toward the 2% inflation target is sustainable before making any decisions on reducing borrowing costs.
Governor Tiff Macklem and the officials have decided to keep rates unchanged at their recent meeting earlier this month.
Even though the Canadian Economy’s First Quarter Forecasts have shown gains, data released show decreasing price pressures. Inflation has stayed within the bank’s target range since the beginning of the year, and core inflation has decreased more last month. Population growth remains higher than employment growth, and wage growth is slowing down.
Prime Minister Justin Trudeau’s government recently announced its intentions to reduce the temporary resident population, with an expectation that this decision to affect economic growth over the next 3 years and contribute to slowing increases in housing prices.
Canadian non-farm payrolls have increased by 39800 in January and average weekly earnings were 3.9% higher compared to a year ago, in another report published in January.
The Bank of Canada’s next rate decision is supposed to take place on April 10, when officials will also provide updated economic projections. Economists are expecting that the bank will once again keep policy rates at 5%, marking the sixth consecutive meeting with no change.
In January, 18 out of 20 sectors expanded, and service industries increased by 0.7%, due to a recovery in educational services following the end of strikes in Quebec. One of the positive gains seen in the Canadian Economy’s First Quarter Forecasts is the increase of 0.2% in good-producing sectors, due to rebounds in utilities and manufacturing after previous declines.
The education sector saw a 6% growth, making it the largest contributor to overall growth. The healthcare and social assistance sector, also impacted by the strikes in Quebec, increased by 0.8%, marking its highest growth rate since October 2020. The manufacturing sector has shown a better result from December with a 0.9% increase. Utilities saw their biggest increase since January 2022, rising by 3.2%, due to a sudden cold snap in mid-January in some regions.
Real estate continued growing at 0.4%, marking the third consecutive monthly increase due to increased activity in the Greater Toronto Area, Hamilton-Burlington, and most markets in Ontario’s Greater Golden Horseshoe. However, there were declines in oil and gas extraction, with a 4.4% drop overall, and a 5.2% decrease in oilsands extraction.
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