Canada’s annual economic growth reaches 5.6%
The recent results show that Canada’s economy continued its streak of monthly increases, with preliminary data pointing to growth exceeding previous forecasts for the first quarter. This news will definitely intensify the Bank of Canada’s plans for aggressive rate increases cycle.
In March, gross domestic product was up for the 10th consecutive month, reporting a 0.5% gain, Statistics Canada said. In February, the economy showed a larger-than-expected 1.1% increase.
According to the preliminary data, Canada saw an annual first-quarter growth of about 5.6%, outpacing all the forecasts.
The report reflects the unexpected resilience of the national economy even despite COVID-19 restrictions, and the fast recovery as the government eased the lockdowns in February and March.
As a result, we can see Canada’s economy on its track to grow by almost double the BoC’s recent forecasts for Q1. The Bank predicted a 3% annual growth just two weeks ago. Central bank officials said the country was already at full capacity at the end of 2021, when the economy grew at an annualized 6.7% in Q4.
This report will certainly strengthen forecasts of more aggressive BoC rate hikes in the nearest future.
Now, investors are fully pricing in a 0.50% rate increase on June 1, followed by a number of additional hikes leading the key lending rate to 3% by the end of 2022. Since the beginning of March, the central bank has raised the overnight rate from extremely low 0.25% to 1%.
“The Bank of Canada has made it quite clear that a half percent increase is coming, but the latest numbers will make markets pricing in at least some possibility of a more aggressive move,” – noted Royce Mendes, head of macro strategy at Desjardins Securities Inc.
The results also confirm forecasts of Canada’s growth outpacing gains in many advanced economies in 2022. One of the reasons for that is the fact that Canada won’t be negatively affected by the war in Ukraine due to the national commodities sector.