Countries are still feeling the repercussions of the strained supply chains from either the pandemic or the war in Ukraine, and Canada was no exception.
However, after reporting a negative monthly GDP percentage change in December 2022 of -0.1%, it showed a strong start to 2023 in which the GDP increased by 0.54% MoM in January, but then it decelerated again for the two months, and it is expected to also record a decline of 0.1% MoM.
The upcoming GDP reading is vital for the Bank of Canada, as it will be a key factor in determining future interest rates, besides the CPI and jobs report data. The Bank of Canada has held interest rates the same during the last two meetings as a pause from the aggressive rate hikes of last year, but with the latest CPI reading and the strikes in the public sector, a hawkish shift could be expected. However, the central bank will face a hard decision considering its declining GDP growth.
“We’re looking for first quarter GDP to climb 2.5 per cent annualized…but policymakers are anticipating a slowdown through the rest of the year, and firmer March and April readings would not be consistent with a slowing economy,” stated Benjamin Reitzes, a managing director of Canadian rates and macro strategist at BMO Capital Markets.
The figures revealed today will provide investors hints towards future moves of the CAD and Canadian stocks. A good GDP reading reflects a strong demand, which could translate towards stronger earnings and higher stock prices. The opposite could also be true for a negative reading.
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