Today, Statistics Canada released its gross domestic product (GDP) growth data for April and forecasts for May.
In April, Canada's real GDP grew by 0.3% month-on-month, broadly unchanged from March – an initial indication that the momentum did not continue into May, where growth is expected to slow to 0.1%. But even then, it was enough to exceed the central bank's growth expectations.
In response, Douglas Porter, chief economist at the Bank of Montreal, commented: "The combined data for these two months suggests that the economy grew at an annualized rate of nearly 2% in the second quarter, which is a little higher than the Bank of Canada (and ours) forecast of 1.5% for the quarter, but we will wait for further data before adjusting our forecast." ”
Porter's calculations show that real growth in 2024 is currently on track to reach 1%. "It's by no means a recession, but it's also quite modest, especially given the population growth rate of more than 3%," he explained.
The market's judgment on the July rate cut
After the Bank of Canada cut interest rates for the first time in early June, there is widespread concern about whether it will continue to cut rates in July, but it seems unclear now.
Doug Porter said overall growth in 2024 was slightly better than expected, but remained weak overall. As for the exact timing of the next rate cut, Porter predicts that it will be in September, provided that inflation slows.
"For the Bank of Canada, this hasn't changed much, as growth is still slightly below potential, which could mean a further rise in unemployment, as well as a further slowdown in underlying inflation."
This week, Canada's inflation data showed that inflation rose to 2.9% in May, compared to 2.7% in April. The consumer price index (CPI) unexpectedly rose and accelerated to 2.9%, while the core inflation measure also rose. This result led to changes in financial markets, suggesting that expectations for a rate cut in July had been lowered.
Earlier this week, money markets were betting on a nearly 75% chance of a rate cut, bringing the probability of a rate cut down to around 40% following Tuesday's inflation data. After today's GDP data, the bet rate rose slightly to 45%.
Economists say the upcoming inflation and employment data have become crucial as today's GDP data has left the market unchanged on interest rate cut bets.
Simon Harvey, head of FX analysis at Monex, said: "If growth is repeated in the next jobs and inflation report, the uncertainty of the data alone could cause central banks to hold their ground. ”
The central bank's next interest rate decision date is July 24.
The 3-year fixed loan rate continues to fall
According to the Financial Post, fixed mortgage rates fell again this week. The nation's lowest uninsured 2-year and 5-year fixed rates fell 11 and 10 basis points to 6.08 percent and 5.04 percent, respectively.
One-year and two-year mortgages are still too expensive for people who don't need short-term financing. But as the Bank of Canada continues to ease policy, these rates will improve.
The 3-year fixed loan remains the most popular option, with the best insured interest rate in the country at 4.84% and the uninsured interest rate at 5.24%.
In terms of floating rates, borrowers are pinning their hopes on another rate cut by the central bank next month. However, Tuesday's disappointing inflation data dealt a major blow to that hope. Core average inflation rose by 0.15 percentage points in reverse to 2.85%.
Interest rate data forecasts from CanDeal DNA suggest another rate cut is likely in September, but the July 24 central bank decision still has the potential for a rate cut.