Canada’s Q1 growth beats expectations, increasing odds for another rate hike

OTTAWA — The Canadian economy grew at an annualized rate of 3.1 per cent in the first quarter of 2023, Statistics Canada reported Wednesday.

The latest data shows growth beat out the federal agency’s own forecast of 2.5 per cent for the quarter. A preliminary estimate suggests the economy grew by 0.2 per cent in April, after remaining flat in March.

The ongoing resilience in the economy will likely spur discussions of a potential rate hike, as the Bank of Canada is expected to make its next interest rate announcement next week.

The federal agency says growth in exports and household spending helped spur growth in the first quarter.

Meanwhile, slower inventory accumulations as well as declines in household investment and business investment in machinery and equipment weighed on growth.

The Canadian economy has managed to continue outperforming expectations, despite the Bank of Canada hoping high interest rates would cause a more profound pullback by consumers and businesses.

The household spending figures show spending up on both goods and services in the first three months of the year, after minimal growth in the previous two quarters.

However, the report notes disposable income fell for the first time since the fourth quarter of 2021. The federal agency says disposable income declined by one per cent, largely due to the expiration of government measures aimed at helping people cope with inflation.

The central bank paused its rate-hiking cycle earlier this year, keeping its key interest rate at 4.5 per cent — the highest it’s been since 2007.

But the central bank’s governor, Tiff Macklem, has signalled that the bank is still trying to figure out if interest rates are high enough to quash inflation.

The headline inflation rate ticked up slightly to 4.4 per cent in April, remaining well above the central bank’s two per cent target.