Canada’s economy topped even the most upbeat expectations for April as real gross domestic product (GDP) grew 0.5 per cent . The rebound from a 0.1 per cent contraction in March was driven by strength in mining, quarrying, and oil and gas extraction, Statistics Canada said Tuesday. Economists say the bounce back should be enough to quiet recession talk, but not quite enough to move the Bank of Canada on interest rates . Here’s what some of them had to say about the latest GDP numbers. ‘Broad-based’ growth: TD “The bigger message here is that this reading should take some air out of the recent ‘technical recession’ narrative,” Toronto-Dominion Bank economist Marc Ercolao said in a note. “The economy is grinding through a soft patch, but household demand is still providing support to activity, while trade exposed industries are pointing to a tentative recovery.” This argues for “patience rather than a pivot” for the Bank of Canada, Ercolao said. TD expects the central bank to hold its benchmark interest rate at 2.25 per cent as “firmer near-term growth lowers the urgency to ease” and inflation remains “contained for now.” April’s growth was “broad-based,” Ercolao noted, with 14 out of 20 industries registering increases. Growth in goods-producing industries reversed last month’s decline, while the services sector grew for the third month in a row. Ercolao said this points to “a better handoff into the second quarter, with Q2 growth now tracking above two per cent annualized.” ‘False alarm’ on recession: BMO “The Canadian economy seemingly shook off the winter blues all at once” in April as manufacturing, construction, rail transportation and pipeline activity all rebounded in sync, Bank of Montreal chief economist Doug Porter said in a note. Porter said the second quarter started on “solid footing,” and there is “substantial upside” to BMO’s estimate of one per cent GDP growth in the quarter, which ends June 30. “If these numbers hold, Q2 is on track for growth of over two per cent,” Porter said. StatCan’s advance estimate for May says real GDP increased by 0.1 per cent. “A more moderate gain in May GDP will serve as a reminder that Canada is still growing slower than potential, so no one should mistake the April bounce as a sign of a robust economy,” Porter said. “Nevertheless, it’s also clear that the small two-quarter dip in output was a false alarm on the recession watch.” Rate hikes ‘a long way off’: Capital Economics April’s stronger-than-expected gains put second-quarter growth on track to “rebound strongly,” Thomas Ryan, North America economist at Capital Economics Ltd., said in a note. “While this should put a firm end to any debate about whether the economy is in recession, growth over the first half of the year is still set to average considerably below the Bank of Canada’s forecast, supporting our view that rate hikes are a long way off,” Ryan said. Ryan said “standouts” in goods-producing industries included construction and manufacturing, while accommodation and food services and public administration notched strong growth within the services sector. After April’s strong gain, Ryan said StatCan’s preliminary estimate for 0.1 per cent growth in May is “slightly disappointing.” “Even so, allowing for a stronger June given the drop back in oil prices and World Cup-related activity, second-quarter GDP growth looks on track to rebound by around 2.4 per cent annualized,” Ryan said. Economy ‘back to life’: CIBC Andrew Grantham, senior economist at Canadian Imperial Bank of Commerce, said in a note that early tracking for the second quarter points to annualized growth of roughly 2.5 per cent. “While that would be stronger than the Bank of Canada’s last MPR projection (1.5 per cent), it wouldn’t quite make up for the undershoot in Q1 from an output gap point of view,” Grantham said. “As a result, we continue to forecast no change in the Bank’s overnight rate this year.” While CIBC was already expecting a “healthy rebound” in the second quarter, Grantham said the period was also “flattered somewhat by a rebound in mining, oil and gas, as well as potentially a boost from FIFA World Cup spending and preparations.” “Because of that we could see growth slow to a slightly more modest pace in Q3, and we continue to see the need for interest rates to remain at current levels to support a sustainable recovery,” Grantham said. Canada’s economy rebounds, growing more than expected in AprilFull adoption of AI and digital technology by SMEs could generate $350 billion in economic growth • Email: jswitzer@postmedia.com
‘False alarm’ on recession: economists react to April’s GDP numbers
