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Canada GDP Shrinks in March, April Rebound Tests BoC
Canada's economy contracted -0.1% in March. An early April advance estimate shows a 0.4% rebound, creating a policy dilemma for the Bank of Canada.
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March GDP Contraction Concentrated in Goods-Producing Sectors
Canada's real GDP fell -0.1% month-over-month in March, missing the consensus expectation for a 0.1% expansion. The decline partially reversed February's 0.2% gain. The weakness was concentrated in goods-producing industries, which dropped -0.8% and recorded their fifth decline in the past six months. Lower activity in mining, quarrying, oil and gas extraction, and construction drove the pullback.
Services-producing industries eked out a 0.1% gain on stronger wholesale trade. That gain was not enough to offset the broader weakness – eight of 20 industrial sectors posted declines. The March figure capped a sluggish first quarter, with real GDP unchanged after a -0.2% contraction in Q4. GDP per capita rose 0.2% quarter-over-quarter as Canada's population declined for a second consecutive quarter.
April Rebound Reopens the Policy Calculus
Statistics Canada's advance estimate points to a 0.4% increase in April GDP, driven by gains in mining, oil and gas extraction, manufacturing, and transportation and warehousing. Some sectors, including agriculture and forestry, remained weak. The early rebound suggests March's contraction may prove temporary rather than the start of a broader downturn.
For the CAD and the BoC rate path, the divergence between March and April creates a policy dilemma. A single month of contraction is not enough to force the BoC's hand, especially when the advance estimate shows a snapback. The Q1 stagnation after a Q4 contraction keeps the economy in a fragile zone. The BoC's next rate decision will hinge on whether April's rebound sustains into May and whether inflation data confirms the soft-landing scenario.