The headline financial development numbers for Canada launched Friday might have been stunning, however the underlying figures present a distinct story.
Canada’s financial system grew
at an annualized charge of two.2 per cent within the first quarter of 2025, in keeping with Statistics Canada, beating economists’ expectations of 1.5 per cent.
The expansion in
gross home product (GDP)
was largely pushed by equipment investments and commodities extraction, however demand was largely flat within the quarter.
Economists imagine the expansion may be attributed to firms getting forward of tariffs, and that most of the underlying numbers paint a darker image that the
Financial institution of Canada
must contemplate.
Economic system appears ‘very frail’: Desjardins
Though GDP development beat expectations, Royce Mendes, managing director and head of macro technique at Desjardins Capital Markets, stated the financial system nonetheless has work to do.
He stated exports to the USA drove Canada’s financial development as importers boosted orders to get forward of deliberate tariffs, however there’s a distinct story beneath.
“The weak ultimate home demand studying for Q1 means that the financial system was stalling even earlier than feeling the complete impression of tariffs, he stated in a notice. “Given the deterioration in current labour market indicators, we imagine that the financial system will battle to put up significant development within the second quarter.”
Mendes expects the Financial institution of Canada to trim charges by 25 foundation factors subsequent week.
‘Commerce war-induced recession’: Oxford Economics
Tony Stillo, director of Canada economics, and Michael Davenport, senior economist at Oxford Economics Canada, supplied a stark outlook for Canada’s financial system within the wake of Statistics Canada pegging the GDP development charge at 0.1 per cent in April.
“Momentum within the financial system has light amid unprecedented uncertainty from the commerce struggle and new U.S.-Canada tariffs,” they stated in a notice. “We expect Canada’s financial system has slipped right into a commerce war-induced recession that may final via the tip of 2025.”
They count on one other rate of interest maintain subsequent week because the
Financial institution of Canada
“tries to stability the draw back dangers to development towards the upside dangers to inflation.”
Regarding particulars: Capital Economics
Stephen Brown, deputy chief North America economist at Capital Economics Ltd., stated GDP’s development within the first quarter was a shock, however the underlying information should not practically as constructive.
“The main points had been much more regarding than that headline determine would possibly counsel,” he stated in a notice. “A lot of the development stemmed from web commerce, as a 6.7 per cent annualized rise in exports outpaced a 4.4 per cent acquire in imports amid tariff front-running within the U.S., in addition to an enormous enhance from the risky inventories part.”
He expects the Financial institution of Canada will return to trimming charges subsequent week however just isn’t ruling out one other pause.
“We clearly can’t rule out one other pause because the (Financial institution of Canada) awaits for extra data,” he stated. “Certainly, market contributors are extra satisfied than us, with rate of interest swaps pricing in an 80 per cent likelihood of a pause.”
Central financial institution to carry charges: RSM Canada
Tu Nguyen, an economist at RSM Canada, stated she expects the financial system to reverse its first-quarter beneficial properties later this 12 months as U.S. tariffs take maintain.
“The financial system will contract within the second quarter as tariffs and commerce uncertainty stall commerce and investments, unemployment rises, households tighten their purse strings, and the
housing market
stays lukewarm regardless of a spring of decrease rates of interest,” she stated in a notice.
She expects the Financial institution of Canada to carry rates of interest once more subsequent week.
• Electronic mail: bcousins@postmedia.com
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