A flat reading in the fourth quarter surprises economists but growth in January provides shot of optimism
Stephen Brown, Capital Economics
“The stagnation in fourth-quarter GDP, together with the downward revision to third-quarter GDP growth, leaves the economy in worse shape than the Bank of Canada expected. That is another reason to think that, even though the U.S. Fed is still hiking, the Bank will be content with leaving policy unchanged.Article content
“Even if GDP edged down in February and March, the strong gain in January implies that first-quarter growth would still be marginally positive. Nevertheless, with the leading indicators looking weak …, we continue to see a strong risk that GDP will decline over the second and third quarters.”“From a quarterly perspective, the larger January print adds upside to our Q1 call with a small increase looking more likely than the 0.5 per cent decline we’ve been expecting.
Looking forward, we are tracking an improvement in GDP for 2023 Q1. The GDP flash estimate for January is consistent with our view of a bounce back, led by an uptick in consumer spending following the most recent jobs surge. Although the Bank of Canada probably feels vindicated in its policy rate pause given today’s weak top-line print, it will still be closely watching the evolution of incoming data, which have surprised higher to start 2023.
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