The Canadian economy is expected to show a slowdown of momentum in Q2 when the country releases GDP data on Friday, with the quarterly annualised rate to have decelerated to 1.2% from 3.1% in the previous three-month period. An advanced estimate from Statistics Canada signalled that GDP likely contracted by 0.2% M/M in June.
Several analysts noted that the expected slowdown in Q2 could be due to various transitory factors such as wildfires, maintenance on energy projects, and civil servant strikes. With next week’s Bank of Canada rate decision in mind, the preliminary estimate for July growth will garner close attention from traders.
HSBC said, “The slowdown will likely be attributed to the decrease in the rate of growth of household consumption to 1.2% from 5.7% in Q1”. It added that it expects residential investment to rise for the first time in four quarters given the modest rebound in activity in the period.
Friday’s report will be the last major piece of domestic data the central bank gets before the next monetary policy decision on 6 September, when a rate hold is expected after increasing borrowing costs in July to a 22-year high of 5%.
The bank, which has highlighted its data dependency for future rate hikes, could receive some respite with a slowing GDP figure in the ongoing fight against inflation. A hot read in July of 3.3%, which beat the forecast of 3% and the 2% BoC inflation target, has led to higher market expectations for another hike in September.
RBC said, “Policymakers are clearly willing to respond with additional interest rate hikes if momentum in the economy isn’t softening enough to ensure inflation pressures will trend lower. But we expect there will be enough signs of cooling demand to date for the BoC to forego another increase in the overnight rate in September.”
According to Capital Economics, “July’s hike was the last hike, and the impact of past hikes will push the Canadian economy into recession in H2 causing inflation and labour markets to ease.” It said the BoC’s forecasts are much more optimistic than their own, with the central bank forecasting stronger growth in H2 2023 and early 2024, adding that this “will lead the central bank to hike further if such optimistic growth forecasts come to fruition.”
Current OIS pricing for the BoC points to unchanged rates for the upcoming meeting and through July of next year, when a cut starts to be priced in.
TD Securities noted that 5.00% will mark the terminal rate for the BoC this cycle. “But we (and the bank) will need to see more concrete evidence of a slowdown before we can close the door on another hike.”
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- GDP (M/M) projected at -0.2% (prev 0.3%)
- GDP (Y/Y) forecast at 1.4% (prev 1.9%)
- Temporary factors seen slowing GDP in Q2
- Market sees BoC on hold through mid-2024
Luke Mumford
LiveSquawk News
@LukeMumford
31 August 2023| 9:00 GMT
The Canadian economy is expected to show a slowdown of momentum in Q2 when the country releases GDP data on Friday, with the quarterly annualised rate to have decelerated to 1.2% from 3.1% in the previous three-month period. An advanced estimate from Statistics Canada signalled that GDP likely contracted by 0.2% M/M in June.
Several analysts noted that the expected slowdown in Q2 could be due to various transitory factors such as wildfires, maintenance on energy projects, and civil servant strikes. With next week’s Bank of Canada rate decision in mind, the preliminary estimate for July growth will garner close attention from traders.
HSBC said, “The slowdown will likely be attributed to the decrease in the rate of growth of household consumption to 1.2% from 5.7% in Q1”. It added that it expects residential investment to rise for the first time in four quarters given the modest rebound in activity in the period.
Friday’s report will be the last major piece of domestic data the central bank gets before the next monetary policy decision on 6 September, when a rate hold is expected after increasing borrowing costs in July to a 22-year high of 5%.
The bank, which has highlighted its data dependency for future rate hikes, could receive some respite with a slowing GDP figure in the ongoing fight against inflation. A hot read in July of 3.3%, which beat the forecast of 3% and the 2% BoC inflation target, has led to higher market expectations for another hike in September.
RBC said, “Policymakers are clearly willing to respond with additional interest rate hikes if momentum in the economy isn’t softening enough to ensure inflation pressures will trend lower. But we expect there will be enough signs of cooling demand to date for the BoC to forego another increase in the overnight rate in September.”
According to Capital Economics, “July’s hike was the last hike, and the impact of past hikes will push the Canadian economy into recession in H2 causing inflation and labour markets to ease.” It said the BoC’s forecasts are much more optimistic than their own, with the central bank forecasting stronger growth in H2 2023 and early 2024, adding that this “will lead the central bank to hike further if such optimistic growth forecasts come to fruition.”
Current OIS pricing for the BoC points to unchanged rates for the upcoming meeting and through July of next year, when a cut starts to be priced in.
TD Securities noted that 5.00% will mark the terminal rate for the BoC this cycle. “But we (and the bank) will need to see more concrete evidence of a slowdown before we can close the door on another hike.”