Pressure building on Bank of Canada: What economists say about slowing GDP

financialpost.com:

Statistics Canada is predicting gross domestic product growth will be flat in March after data released Tuesday showed the Canadian economy slowed more than expected in February.

On a month-over-month basis, GDP was up just 0.2 per cent in February, missing analyst estimates for growth of 0.3 per cent and the data agency’s advance estimate of 0.4 per cent. Year over year, GDP grew 0.8 per cent, well off expectations for a 1.1 per cent expansion.

The national data agency also revised January GDP growth down to 0.5 per cent from 0.6 per cent.

Here’s what economists are saying the latest numbers mean for the economy, the Bank of Canada and the path of interest rates.

“Momentum in the Canadian economy appears to have faded quickly as the first quarter progressed,” Andrew Grantham, an economist with CIBC Economics, said in a note.

Despite the slowdown, Grantham estimates that the economy is on track to grow at a 2.5 per cent annualized rate in the first quarter — close to the Bank of Canada latest estimate of 2.8 per cent.

However, the end-of-quarter weakness could bleed into the second quarter, Grantham warned, posing risks for the central bank’s estimate of 1.5 per cent annualized growth.

“We always suspected that strength at the start of the year largely reflected an easing of previous supply constraints and the effects of better-than-normal winter weather, and that the economy could stall again thereafter,” Grantham said. “Today’s data appear to support that view.”

If the second quarter starts out sluggishly and inflation remains in check, “the Bank of Canada should start gradually reducing interest rates at the June meeting,” he said.

“The slowdown in growth isn’t surprising, given that January’s increase was buoyed by