Preview: Due May 29 - Canada Q1/March GDP - Domestic demand to lead a modest bounce
We expect Q1 Canadian GDP to increase by 1.4% annualized, in line with a 1.5% forecast seen in April’s Bank of Canada Monetary Policy Report. We expect March GDP to be unchanged, consistent with a preliminary estimate made with February data. Unchanged March GDP and no revisions to January or February would imply a 1.3% annualized increase in Q1, though the two measures of GDP do not always match exactly.
This will follow a 0.6% annualized decline in Q4 when final domestic demand rose by 2.4%. We expect domestic demand to accelerate to a 3.1% pace in Q1. With retail sales having made a strong start to the quarter we expect household consumption to rise by 3.6%, while government consumption rises by 2.0%. We expect a 3.2% increase in gross fixed capital formation, similar to Q4, though as in Q4 this will come largely from government. We do however expect a marginal increase in business fixed capital formation after four straight declines, largely on a correction in housing from a weak Q4.
Trade data suggests a significant negative from net exports. We expect exports to fall by 1.6% and imports to rise by 11.2%, taking 3.8% annualized off GDP. Strong imports however suggest inventories will pick up from a weak Q4, adding 2.1% to GDP in a partial offset to the net exports decline.
Export prices significantly outpaced import prices in Q1, and that will lift the GDP deflator, were we expect a 5.3% annualized increase, lifting yr/yr growth to 2.8% from 2.4%. A flat quarterly March GDP will follow gains of 0.2% in February and 0.1% in January. We expect services to see a third straight 0.1% increase but goods to fall by 0.3%, with the preliminary estimate seeing weakness in mining, quarrying and oil and gas extraction.
The latter is likely to be lifted in coming months by higher energy prices, leaving the overall impact on Canadian GDP from the energy shock as mixed. The lift is however unlikely to be quickly felt, and the preliminary estimate for April GDP is likely to be in line with March’s expected unchanged outcome. The BoC also expects a 1.5% annualized increase in Q2 GDP.
