Canada Economic Forecast

After flatlining in Q4, the economy appeared to perform well in Q1. GDP rose 0.5% month on month in January, topping market expectations, thanks to expansions in mining, construction, manufacturing and services. A flash estimate put the GDP expansion at 0.3% in February thanks to the mining, manufacturing and finance sectors. Moreover, job gains were three times higher than forecast in March, boding well for consumer spending. However, the rate-sensitive real estate sector was downbeat, with housing starts and prices falling in Q1 from Q4. In politics, the federal government published an expansionary budget in March: Over the next five years the country is expected to run a budget deficit and there will be new spending worth CAD 67 billion (USD 91 billion) on areas such as health and dental care, clean energy and cost-of-living measures. This will boost activity ahead.

Inflation dropped to 4.3% in March from February’s 5.2%, representing the lowest rate since August 2021 and in line with market expectations. 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, but is not expected to return to the central 2.0% target until late-2024.