First National Financial LP

Residential Market Commentary - The economy slows down

  • First National Financial LP

The latest measure of Canada’s economy suggests that the widely anticipated slowdown is arriving.

Statistics Canada reports that Gross Domestic Product (GDP) grew by a mere 0.1% in February, down from 0.6% in January.  GDP is the total value of all goods and services produced by the economy.

That kind of pullback would normally be seen as bad news, but it is what the Bank of Canada has been hoping for as it works to bring inflation under control.  The central bank has been raising interest rates in an effort to discourage borrowing and buying. The slowing economy suggests that it is working.  With people and businesses buying less stuff, supply should be able to catch up to demand and price increases should also ease.

It also means the BoC is under less pressure to continue raising rates, which will be welcome news for anyone shopping for a mortgage.  Many market watchers expect the latest GDP numbers will keep interest rate hikes on ‘pause’ for the rest of the year.

Early estimates for the March GDP reading have the economy actually contracting by 0.1%.  April GDP is also expected to be weak, due to the federal workers’ strike. 

Currently, the Canadian economy is growing at an annualized rate of 2.5%, which is in line with Bank of Canada estimates.  But analysts say the slowdowns forecast for March and April will likely mean flat or negative GDP readings for the second quarter of this year. 

The contraction is not expected to be big enough to trigger interest rate cuts.