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Randall Bartlett
Senior Director of Canadian Economics
Economic News
Canada: April Wasn’t the Cruelest Month for Real GDP
June 28, 2024
Highlights
- Real GDP posted a solid advance in April, increasing by 0.3% in the month, following a flat print in March. This was in line with the consensus of economic forecasters and Statistics Canada’s flash estimate (0.3%). Both goods- and services-producing sectors had strong showings, each seeing gains of 0.3%. In all, 15 of 20 subsectors posted increases. See Table 1 for further details.
Implications
There was a lot to like in April’s real GDP release. Not only was the headline advance solid, but the gains were relatively broad based as well. That said, the decent growth numbers for both goods- and services-producing sectors were very much concentrated in a couple of industries. For instance, gains in the goods-producing sectors were driven largely by an outsized move in mining and oil and gas extraction. Meanwhile, a surge wholesale trade led the advance in services-producing sectors, thanks to motor vehicles and parts destined for manufacturers and retailers. That said, both sectors rebounded from contractions in the prior month, so it’s likely not sustainable.
Looking ahead, Statistics Canada’s flash estimate for May real GDP by industry is pointing to a gain of just 0.1% (graph 1). Assuming it is correct, real GDP by industry would advance by 1.8% annualized in Q2 2024 if there was no growth in June. Similarly, we’re projecting an advance in Q2 real GDP by expenditure of 1.6%. This is in line with the 1.5% in the Bank of Canada’s April 2024 Monetary Policy Report (MPR).
However, the real GDP growth numbers look softer when viewed in the context of surging population growth (graph 2). On a per capita basis, real GDP has been declining for the better part of two years. This suggests economic slack likely continued to increase in the second quarter. Indeed, population gains have been well-outpacing hiring for the past year as well, leading the unemployment rate gradually higher. But if the federal government follows through with its plans to cap the number of temporary workers coming to Canada, this tailwind to growth will slow considerably going forward.
For the Bank of Canada, this is just the latest data print to fall in line with its April MPR projection. CPI inflation for May, released earlier this week, took markets by surprise by coming in at 2.9% y/y. When combined with April inflation, this also put the Q2 price growth tracking roughly in line with (albeit slightly below) the Bank’s latest projection. Taken together, we continue to be of the view that the Bank of Canada will cut the policy interest rate again in July, but it’s a closer call after seeing this week’s CPI numbers. We will be watching the upcoming labour market and inflation data closely to get a better sense of the timing of upcoming rate cuts.