The Canadian economy grew at an annualized rate of 1.7% in the first quarter of 2024, falling short of the forecasted 2% increase [c83edc6e][3717f7f0]. This lower-than-expected growth has increased the likelihood of a rate cut by the Bank of Canada. Financial markets have raised their bets for a rate cut on June 5 to almost 83%, up from 66% previously [0ff0303f][3717f7f0].
Household spending on services rose 1.1%, boosted by spending on telecommunications services, rent, and air travel. Household spending on goods gained 0.3%, helped by spending on new trucks, vans, and SUVs [c83edc6e][3717f7f0]. The first-quarter growth was driven by higher household spending on services, while per capita spending on goods declined for the tenth consecutive quarter [0ff0303f][3717f7f0].
The GDP report indicates that the Canadian economy is facing challenges in its growth and supports the case for a rate cut next week. These trends suggest that the Canadian economy is struggling to grow and has shown signs of losing steam. As a result, expectations for a rate cut this summer have increased [0ff0303f][3717f7f0].
Bank of Canada governor Tiff Macklem has said a rate cut is possible, but the decision will be driven by economic data. The annual inflation rate fell to 2.7% in April. The construction industry gained 1.1% in March, while the manufacturing sector fell 0.8%. Statistics Canada revised its reading for Q4 2023 growth down to an annualized rate of 0.1%. Economists believe the Bank of Canada remains on track to deliver the first interest rate cut at next week's meeting [c83edc6e][3717f7f0].
The quarterly growth rate of the Canadian economy was slower than the 2.2% pace forecast by analysts and the Bank of Canada's 2.8% forecast. Fourth-quarter GDP growth was revised to an annualized rate of 0.1% from 1.0% reported initially. The GDP report shows that Canada's economy did not rebound from a soft patch last year as strongly as data initially suggested [3717f7f0].
In other news, Canada's Big Six banks reported second-quarter earnings, with Royal Bank of Canada, Canadian Imperial Bank of Commerce, National Bank of Canada, Toronto-Dominion Bank, and Bank of Nova Scotia beating estimates. However, Bank of Montreal's profit fell below expectations [d8683e99].
Additionally, Ottawa plans to use public land for affordable housing as part of Prime Minister Justin Trudeau's aim to make housing more affordable without bringing down home prices. The government's plan comes as Canada's job vacancy rate is declining [d8683e99].
The GDP report and bank earnings indicate a mixed outlook for the Canadian economy. While economic growth fell short of expectations, bank earnings have been positive. The possibility of a rate cut by the Bank of Canada remains on the table, and the government's plan to use public land for affordable housing reflects efforts to address housing affordability concerns [d8683e99][3717f7f0].