- Canada’s economy is rebounding rather nicely in Q2
- April GDP beat estimates…
- …and growth continued in May
- The BoC may argue Q1 miss and Q2 beat leave it with little overall H1 surprise…
- …after we get higher inflation expectations from BoC surveys
- Canadian GDP, m/m %, SA, April:
- Actual: 0.55
- Scotia: 0.4
- Consensus: 0.4
- Prior: -0.1
- May ‘flash’ GDP guidance: +0.1
Canada’s economy never entered any credible definition of recession, but growth is rebounding nicely in the second quarter. This offers a nice set-up for the Bank of Canada’s wholesale forecast reset in the July 15th MPR and following next week’s BoC surveys that are likely to show higher inflation expectations.
Q2 GDP is tracking a gain of 2.3% q/q SAAR and is very close to rounding up to 2.4%. That would be the strongest growth since 2025Q3 (chart 1) using monthly production-side GDP accounts.
GDP grew by 0.55% m/m SA in April which was higher than the preliminary flash estimate of 0.4% that Statcan offered about a month ago. It’s the strongest monthly growth rate since July of last year. Spring has sprung and some of the categories of growth may reflect exit from hibernation following more adverse than normal weather over the winter.
GDP for the month of May was tentatively guided to be up by another 0.1% m/m SA which met my expectations for continued growth even with the higher than expected starting point in April.
Chart 2 shows that there was high breadth to April GDP. Growth was led by mining and oil/gas extraction, but most sectors were up. Chart 3 shows weighted contributions to overall GDP growth by sector.
As for May GDP we only get verbal guidance with the prelim estimate as Statcan noted this: “Increases in finance and insurance and real estate and rental and leasing were partially offset by decreases in wholesale trade and agriculture, forestry, fishing and hunting."
This set of readings and Q2 tracking offers a nice set up for the July MPR. April's MPR was negatively surprised by Q1 GDP (-0.1% q/q SAAR, BoC 1.5%) but that may be revised up on trade figures, while they had 1.5% q/q SAAR for Q2 GDP and now we're tracking almost a percentage point higher. A miss here and a beat there will be argued to be roughly similar to what the BoC anticipated in April for H1 overall since a) the figures largely offset one another, and b) the BoC almost always says everything is matching their expectations anyway.
A wholesale refresh of their forecasts will be coming after we get next week's BoC surveys that are likely to show further increases in inflation expectations. Chart 4 shows where consumer inflation expectations stood in Q1 with all time frames at or above the 3% upper end of the BoC’s 1–3% inflation target range. Chart 5 shows businesses’ inflation expectations using a few measures. The BoC’s BOS survey measure of 2-year ahead inflation expectations has some catching up to do in relation to both the BoC’s slightly fresher Business Leaders’ Pulse measure of inflation expectations. The CFIB’s small business measure of inflation expectations is the freshest of all (to June) and tends to track beneath the BoC’s measures which implies they will rise more than the CFIB measure.
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This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.