Economists suggest Bank of Canada may need to cut rates due to slowing GDP

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 deceleration in February and March signal this rebound is unlikely to last,” Mark Ercolao, an economist with Toronto-Dominion Economics, said in a note, referring to estimates for annualized growth in the first quarter of 2.5 per cent.

“This should encourage the Bank of Canada, which needs to make sure inflation is on a sustainable path back to two per cent,” Ercolao said, noting that markets are currently split between a first cut in June and July.

TD believes the bank will move in July, “as it will give the bank slightly more time to ensure that inflationary trends are durable.”

“The slowdown in growth isn’t surprising, given that January’s increase was buoyed by one-off factors,” Royce Mendes, managing director and head of macro strategy at Desjardins Group, said in a note.

Mendes is forecasting first-quarter annualized growth of 2.2 per cent and 1.5 per cent in the second quarter, mirroring the Bank of Canada’s estimate.

“As a result, we continue to see the Bank of Canada beginning a rate-cutting cycle in June,” he said.