Canada’s Gross Domestic Product started the year with good growth and looks poised to meet or exceed expectations for the first quarter even though it slowed in February.
Statistics Canada reports January GDP rose by 0.4%, up one-tenth of a percentage point from December. Early estimates for February suggest growth will be flat. Still, forecasters see annualize growth in the first quarter hitting the Bank of Canada’s 2.0% target.
Personal GDP – which is the value of all goods and services produced by the economy divided by the working population – rose for the second straight month.
What that means for interest rates remains to be seen. Normally good GDP growth would see the Bank of Canada put a hold on interest rate reductions, but the uncertainty caused by U.S. tariffs has changed that.
In its latest ‘Summary of Deliberations’, which followed the central bank’s March 12 rate cut, decision makers pointed directly at the tariff turmoil as the key reason for the reduction.
The Bank’s top decision makers agreed that "in the absence of tariff threats and elevated uncertainty, the decision would probably have been to maintain the policy interest rate at 3.0%," the summary said.
Instead, the Bank cut its rate by a quarter-point to 2.75%.
Tariffs are expected to slow the Canadian economy starting in the second quarter. The Bank’s next rate decision is set for April 16. A new round of tariffs is set for April 2.