Canada’s economy “hit a wall” in March. Will this be enough for the Bank of Canada to think about lowering the rate?

Although the Canadian economy showed a modest increase in February despite high interest rates, according to one economist, there are already signs of a slowdown.

“The numbers suggest that the national economy still has a certain momentum, but it might be fading away,” – Charles St-Arnaud, chief economist with Alberta Central and former economist at the Bank of Canada, noted.

The latest report by Statistics Canada shows that gross domestic product (GDP) was up by 0.1% in February compared to January. Nevertheless, a flash estimate for March points to a possible decline of 0.1%.

Until this moment, Canada’s economy has been showing strong resilience to high interest rates. However, St-Arnaud is wondering how long that could last.

Aside from a possible GDP decrease in March, Canadians are also struggling with high debt levels, he says. Households have proven their ability to cope with debts while they have income, but an economic slowdown, he warns, means a significant risk of job losses.

It should be noted that an economic slowdown has been expected for a long time already as interest rates have grown. Although some economists have believed the slowdown would start earlier, the signs of weakness are becoming more vivid right now.

“Following a strong start of 2023, the national economy has already hit a wall by March,” – CIBC economist Andrew Granthan noted.

The predicted decline in real GDP is caused by the ongoing decreases in wholesale and retail trade, as well as in the sector of mining and quarrying.

However, Grantham says the new numbers will hardly change the central bank’s outlook, which is keeping its overnight rate at 4.5% – the highest level since 2007.

“Until we see more distinct signs that slowing economic growth is also helping to reduce core inflation, the BoC will keep leaning towards raising interest rates, even if an increase is not fully necessary, and rate cuts should not be expected until 2024,” – Grantham said.