Despite the strong start to 2023, the big six bank's economists are still expecting a slowdown in the coming months
The Canadian economy grew at the start of 2023, surprising many – including the Bank of Canada - with the strength of its resilience.
But the better-than-expected 0.5% gain for real GDP reported by Statistics Canada should not be taken as a sign of things to come according to RBC Economics.
First, the good news. The stats show gains across 17 of the 20 industry sectors with goods producers gaining 0.4% and services industries up 0.6% and the overall gain was in sharp contrast to December’s 0.1% decline.
Further, Statistics Canada’s preliminary data for February shows a 0.3% increase.
However, RBC economist Claire Fan says that, while the first quarter is heading for a 2.5% annualized gain, rising borrowing costs and higher prices are continuing to squeeze household purchasing power.
“Those headwinds will slow demand and growth and we continue to look for a moderate decline in GDP beginning in the second quarter of this year,” Fan wrote in an economic update.
Scotiabank caution
Scotiabank’s Derek Holt is also cautious about the latest data, highlighting that the rebound in GDP was skewed by those industries that suffered disruptions late in 2022.
These included “the shut Keystone flows given a spill south of the border, two train derailments that disrupted the transportation sector and halted the flow of products to other sectors, and more adverse weather than usual that disrupted travel” he wrote in his analysis.
Scotiabank’s forecast for January was 0.7%, two percentage points higher than the actual figure and three points above the consensus 0.4%.
Holt is also skeptical about market expectation that central banks will start cutting rates by the fall.
“Setting aside a forecast bias based upon accidents happening and being mishandled or overwhelming liquidity management, the fundamentals don’t support cut pricing. In my view, central banks are likely to set a higher bar against easing than market participants who think every soft bump and wiggle should drive a pile on into the front-end,” he concluded.
