One expert noted that this week’s announcement of the gross domestic product (GDP) estimates for the Canadian economy could be significant for the Bank of Canada’s decision to hike interest rates or not.
In a study published last week, macro strategist Benjamin Reitzes of BMO Capital Markets stated that the GDP report might affect the central bank’s decision to change its policy rate on June 7.
Reitzes cites one major factor as the delay between the publishing of the May jobs report and the central bank’s rate decision. He said that the subsequent interest rate announcement on July 12 will have “notably more data in hand, with another two job reports and the CPI [consumer price index],” as a result.
On Wednesday, Statistics Canada is expected to publish GDP figures for the first quarter of 2023.
Following an aggressive hike campaign that began in March of last year, Canada’s central bank decided to keep interest rates at 4.5 percent at its two most recent rate announcements.
Reitzes stated that he anticipates the next GDP statistics to be comparable to the forecasts made by the Bank of Canada.
We anticipate that the first quarter of GDP will increase by 2.5% annually. Firmer March and April numbers would not be consistent with a declining economy, he noted in the report, and officials are forecasting a decline for the remainder of the year.
Reitzes stated that stronger-than-anticipated inflation figures issued on May 16 fueled expectations for a second interest rate increase, “but we don’t believe the case is sufficiently compelling to prompt another push higher just yet.”
“That dynamic could shift as a result of the March/first quarter GDP report. “The flash estimate for March GDP came in at -0.1%, continuing the first quarter’s decelerating trend,” he stated.
According to Statistics Canada, annual inflation increased to 4.4% in April.
Despite April’s inflation data, Reitzes predicted that overall inflation will moderate to 3% by the middle of the year, in keeping with estimates made by the Bank of Canada.
Reitzes added that April GDP results are not anticipated to be “any better” than March’s figures since public sector strikes could have an impact and “potentially drive another negative reading,” he said.
After two consecutively negative GDP readings, he warned, “It’s going to be difficult to hike rates.”
The Bank of Canada would face a substantially better economic backdrop than anticipated, though if March is revised upward and the economy managed to gather enough momentum to raise April GDP.
