Bank of Canada |  Another "strong" rate hike in sight

Bank of Canada | Another “strong” rate hike in sight

The Canadian economy held firm in March, ending the quarter with 3.1% annualized growth, arguing for a third key rate hike on Wednesday.

“GDP growth of 3.1% is respectable, especially since the first month of the year was weighed down by health measures,” commented the National Bank economists after the publication of the most recent data from Statistics Canada on the evolution of the economy.

In March, the Canadian economy grew by 0.7%, closing the first three months of the year at an annual rate of 3.1%. This is well below expectations, which exceeded 5%, but the outlook remains positive. Domestic demand, including consumer spending and residential investment, has driven the economy since the beginning of the year. Nonresidential investment, particularly in Quebec, contributed to growth.

Although most federal assistance programs have ended, the household savings rate continues to rise and remains above its pre-crisis level, providing a cushion against inflation and rising rates. of interest.

Preliminary estimates from Statistics Canada point to more modest growth of 0.2% for April.

At 3.1%, the economy’s current growth rate is in line with the Bank of Canada’s forecast in its most recent report. Monetary Policy Report (3%).

Since the publication of the Monetary Policy Report On April 13, virtually all economic indicators reinforced the need for higher interest rates.

Like many of his colleagues, the economist expects the Bank of Canada to raise rates for the third time, by 50 basis points, on Wednesday.

“Nothing in today’s report [sur le PIB] does allow the central bank to curb its strength in the short term”, also believe the economists of the National Bank.

Towards a slowdown in inflation

Therefore, the reference rate could go from 1% to 1.5% in an attempt to curb inflation, which continues to gallop to 6.8% in April.

At Laurentian Bank, forecasters say inflation may have peaked in April to begin its slowdown.

In the United States, prices continue to rise, but the rate of increase slowed in April. Prices rose 6.6% in March, compared to a 6.3% jump in April.

While most observers expect a fourth rate hike by the Bank of Canada to be required in July, the outcome is less clear. A pause is possible, because the real estate market, in particular, seems to react quickly to the rising cost of money. “A change of tone [de la Banque centrale] is likely thereafter, as declining activity in interest-rate-sensitive sectors will cool the economy,” said Randall Bartlett, senior director of Canadian economics at Desjardins.

Growth in various sectors

According to Statistics Canada, household spending rose 0.8% in the first quarter, posting a third consecutive quarterly increase.

Spending on durable goods increased 2.6% in the first quarter, driven by a 16.1% increase in spending on new motor vehicles and a 3.5% increase in new trucks, vans, and sport utility vehicles.

However, Statistics Canada noted that despite the increases, spending on motor vehicles remained below pre-pandemic levels as supply chain issues continued to plague this sector.

Residential construction increased 4.3%, with renovation costs up 9.3%, resale costs up 4.6% and new home construction up 0.2%.

Business investment in non-residential buildings increased by 2.9% and that of machinery and equipment by 0.9% in the quarter, while spending on structural engineering increased by 3.5%.

Statistics Canada also said that employee compensation rose 3.8% on a nominal basis for the quarter. Excluding the third quarter of 2020, the federal agency noted that this was the largest quarterly increase since the second quarter of 1981.

with the Canadian press

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