Canada Economic Forecast

A flash estimate put GDP growth in seasonally adjusted annualized terms at 2.5% in Q1. That said, momentum ebbed over the course of the quarter, with a strong expansion in January followed be tepid growth in February and an expected contraction in March. Turning to Q2, available data is positive. In April, the economy added more jobs than expected and the unemployment rate remained close to an over 50-year low, boding well for private spending. Moreover, the manufacturing PMI moved back into expansionary territory in the same month. In addition, there were signs that the housing downturn could be bottoming out: Housing prices, sales and starts all rose in April from March. The expansionary budget announced in Q1 is likely providing further support, although restrictive monetary policy will still be capping momentum.

Inflation edged up to 4.4% in April, following March’s 4.3% and contrasting market expectations for a decline. Inflation should move back within the Central Bank’s 1.0–3.0% target range in H2, supported by improved global supply chains and a more favorable base effect. However, inflation is only forecast to return to the midpoint of the target range in late-2024.