Canada’s slumping growth hints at second quarter recession

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Canada’s economy grew 0.4% in January, beating analyst estimates and laying the foundation for quarterly annual growth to meet the Bank of Canada’s target of 2%.

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However, Statistics Canada estimates of gross domestic product (GDP) in February are flat, which may be the possibility that the trade war between U.S. President Donald Trump continues to weaken consumer and business confidence.

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This is what economists have for the latest GDP figures and their significance to Canadian banks and interest rates.

Balance method: Central Alberta

Charles Starnaud, chief economist at the credit union Alberta Central, said the Canadian economy has entered a new year with a “strong position” but it doesn’t matter now.

“Overall, economic strength at the beginning of the year has not changed. Bank of Canada believes it will need to balance the inflationary impact of the high inflationary pressure caused by tariffs,” he said in a report on Friday.

For now, he expects policymakers to keep interest rates at their next policy meeting on April 16 unless there is a significant change in tariffs.

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Based on the “extreme uncertainty” caused by Trump’s tariff spiral in February and March, St-Arnaud believes the economy fell into a contraction in the second quarter.

“Artificial Improvement”: Oxford Economics

The strong result of the GDP in January was a result of a “artificial boost”, with companies pushing more exports to the United States to beat tariffs and GST/HST tax benefits to support demand, Canadian Oxford economist Michael Davenport Canada Oxford economist Michael Davenport.

He said it was only going to grow from here downhill.

“January may represent a peak of economic activity as the U.S.-Canadian trade war brings Canada’s economy to recession from the second quarter,” Davenport said in a report.

He believes Canadian banks won’t invest too much stock in the lagging GDP data, and he said policy makers may hold interest rates at the next meeting.Balancing the negative blow to the rising risk of inflation by tariffs. ”

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“Losing motivation”: Capital Economics

Capital Economics Ltd. North American economist Thomas Ryan said the bad flash GDP in February cannot be fully placed on the door to Trump’s tariff threat.

“Nevertheless, it adds the meaning of the economy losing momentum,” he said in a statement.

Falling business and consumer confidence also seem to be growing anxiety about tariffs and the damage it may cause.

“However, we have not seen the full impact of the emerging trade war and the U.S. on hard data, and we hope this will push the economy into a moderate recession in the middle of the year,” he said.

“Backward Data”: Royal Bank of Canada

“Given the increasing trade risks and lower consumer confidence in March, it’s not important to lag further behind data,” Nathan Janzen, assistant chief economist at RBC, said in a note.

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Most of the tough economic data have not yet reflected the decline in consumer confidence recorded by Canadian banks in their last interest rate decision report in March.

Janzen said Royal Bank of Canada’s (RBC) tracking of credit card transactions has not yet shown a drop in spending in mid-March, and job openings are better than this time last year.

January is the first time that per capita GDP has risen in two consecutive months in two and a half years. Previously, it had contracted in several quarters as the economy failed to keep up with population growth.

“But international trade risks continue to cast a shadow on the outlook, with details behind an expected round of tariff announcements next week (with potential to significantly impact Canada’s economic growth outlook),” he said.

•Email: gmvsuhanic@postmedia.com

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