Canada GDP jumped 0.5% in April, beating estimates. Q2 tracking above 2% annualized. BoC sees patience. May GDP +0.1% in guidance. Recession narrative fades.
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Canada's economy grew faster than expected in April. Gross domestic product rose 0.5% month over month, a tick above Statistics Canada's advance estimate and the consensus call.
The gain was broad. Fourteen of 20 industries recorded increases. Goods-producing industries rebounded 1.2% from a March decline. Oil and gas extraction led with a 3.7% jump. Construction and manufacturing posted smaller gains. On the services side, output rose 0.3% for a third straight month. Public administration drove the public sector aggregate up 0.4%. Transportation and warehousing rose 0.9%. Real estate ticked higher for a third consecutive month.
Statistics Canada's early read for May points to a more modest 0.1% increase. A lift from financial and real estate services is expected to be partly offset by a drag from wholesale trade.
For the Bank of Canada, the April print shifts the conversation. TD Bank economists wrote that firmer near-term growth lowers the urgency to ease. Inflation pressures are contained for now. That gives the central bank cover to stay on the sidelines. The report called for "patience rather than a pivot."
The stronger handoff pushes second-quarter gross domestic product tracking above 2.0% annualized, according to TD. That pace, if sustained, would make the first-quarter stumble look like a temporary soft patch rather than the start of a deeper downturn. The bank's analysts said the data takes "some air out of the recent technical recession narrative."
What does that mean for the Canadian dollar? A Bank of Canada on hold, with the economy showing resilience, reduces the probability of a near-term rate cut that would weigh on CAD. The next big test for the loonie remains Friday's U.S. jobs report. The domestic growth data tilts the risk skew toward a steady policy path. Tracking speculative positioning via the weekly COT data will help assess if the GDP beat changes CAD sentiment.
The May GDP estimate, due in late July, will show whether April's pop was a one-off or the beginning of a sustained recovery. Slowing wholesale trade could cap the upside. The services sector's momentum offers a buffer. The Canadian economy is not booming. It is shaking off the worst of the recession chatter.
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