indicatorThe Owl

Squeaky brakes

Canada’s economy rebounded in January

By Rob Roach, ATB Economics 3 April 2023 1 min read

In the topsy-turvy world of elevated inflation, we are “hoping” to see signs of weak economic growth (though not too weak) because this means the interest rate hikes are working and will—fingers crossed—be just enough to bring inflation down to a more reasonable level.

It’s still early days with the detrimental effects of higher borrowing costs not finished working their way through the economy, but new GDP numbers from Statistics Canada show that the Canadian economy started the year stronger than expected.

After a contraction of 0.1% in December, Canada’s real GDP grew by 0.5% in January.

Statistics Canada also provided a preliminary estimate of 0.3% growth in February.

That might not sound like a lot, but it’s a faster clip than the Bank of Canada and most forecasters were expecting.

If the monthly numbers hold, first quarter growth will come in around 2.5% on an annualized basis compared to the Bank of Canada’s most recent forecast of 0.5%.

Given the ongoing invasion of Ukraine, the recent troubles in the US and European banking sectors, and the aggressive interest rate hikes that have already taken place, there is still lots of the year left for the national economy to cool down and even shrink for a quarter or two.

But, if the opening pace does not moderate and, as a result, inflation stays elevated, the Bank of Canada may decide it has to hit the brakes harder and take interest rates even higher.

Ideally, we will experience a “soft landing” in the form of a mild reduction in economic growth accompanied by the air steadily being released from the inflation balloon.

As noted above, our fingers are crossed.

Answer to the previous trivia question: The BBC claimed that spaghetti grows on trees as part of an April Fools’ Day hoax in 1957.

Today’s trivia question: How many regular season NHL games are there (per team as of the 2022-23 season)?

Canada's economy grew in both January and February 2023

Canada's economy grew in both January and February 2023

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