It’s not much of a consolation, but Canada’s plodding economy looks like it outperformed the U.S. in the first quarter.
Figures due out Friday are expected to show that U.S. gross domestic product shrunk at an annual rate of as much as 0.5% in the first quarter.
Forecasts suggest Canadian GDP, on the other hand, grew 1.7% – still positive, but a dramatic slowdown from the 2.9% pace of the final three months of 2013. That report is also due out Friday.
The big story in both countries was the cold and stormy winter weather, which affected everything from home building to consumer spending and exports.
The rest of the year is likely to be better, but nowhere near the near-3% pace of the final quarter of last year. And few economists expect Canada to grow faster than the U.S. through the rest of the year.
An economist from Bank of America Merrill Lynch is forecasting growth in Canada of 2% or less throughout 2014. She said exports will pick up a bit, but declines in home building and continued weak capital spending will keep a lid on more rapid growth – a trend she dubbed "growth gone mild."
Another interesting feature of Canada’s economic performance in the quarter is that the economy appears to be holding up better than the Bank of Canada expected, based on the forecasts contained in the central bank’s April monetary policy report.
Inflation is not as weak as Bank of Canada Governor Stephen Poloz feared. Last week’s report on headline and core inflation for April (2% and 1.4% respectively) suggest inflation is running significantly ahead of the bank’s forecasts.
Likewise, if first quarter GDP hits the Bloomberg consensus of 1.7%, that would beat the the Bank of Canada’s forecast of 1.5%.
Economists say the bank may soon have to shift from the balanced monetary stance its been in since last fall. Poloz has insisted that the bank’s next rate move is just as likely to be a rate cut as a rate hike.
But with the economy generally stronger than expected, Poloz might well have to take a rate cut off the table later this year.
