Morning Market Brief: May 1, 2024

Canada’s economic growth slows?

Statistics Canada (StatsCan) reported that Canada’s economy expanded in February, but at a slower pace compared to January. Recent data has shown that tight financial conditions are hindering both consumer and business activity, which has weighed on Canada’s economic growth. But slower growth and lower inflation might be what the Bank of Canada (BoC) needs to begin lowering interest rates.?

• Canada’s gross domestic product (GDP) grew by 0.2% in February over the previous month. February’s growth was a slowdown from the 0.5% increase posted in January. Year-over-year, the economy expanded by 0.8% in February.
• Canada’s economy benefited from a stronger oil and gas extraction industry. The industry has benefited from strong extraction along with higher prices for oil. The transportation industry also grew in February, driven by higher railroad activity. Conversely, the manufacturing sector hindered overall growth. The sector continues to be weighed down by relatively weak domestic and global demand.
• Looking ahead, StatsCan estimates that economic growth stalled in March, suggesting Canada’s economic activity weakened as the first quarter progressed. The BoC projected Canada’s economy to grow by 2.8%, annualized, but March’s estimate points to growth of only 2.5% in the first quarter.
• Canada wasn’t the only major economy to report GDP results yesterday. An advanced estimate showed Europe’s economy expanded by 0.3% over the first quarter of 2024, up from the 0.1% decline in the fourth quarter of 2023. Europe’s annual inflation rate was estimated at 2.4% in April, unchanged from March. Europe’s economy has been particularly hard hit over the past several quarters with demand drying up, both domestically and from abroad.

February’s softer growth rate suggests tight financial conditions are weighing on consumers and businesses. The slowdown in economic growth, along with softer inflationary pressures, could nudge the BoC to begin lowering interest rates. The benchmark overnight interest rate stands at 5.00%, with markets currently expecting a potential rate cut this summer.

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