Canadian GDP (Q1 2022)

Canada's GDP grows less than expected in the first quarter 

• The Canadian economy expanded by 0.8% quarter/quarter (q/q) in Q1 2022 (3.1% annualized), with final domestic demand up 1.2% (q/q). Furthermore, the flash estimate for April showed a deceleration to 0.2% month/month (m/m).
• Spending by households increased by 0.8% q/q. Statistics Canada noted that this was the "third consecutive quarterly increase, as outlays on most goods and services expanded, even with limited capacity restrictions throughout Canada on in-person shopping and services." Durable goods led the way, up 2.6% q/q, while spending on services rose by a more modest 0.7% q/q. 
• Residential investment rose again, up 4.3% q/q, with renovations spurring the gain. Investment in non-residential structures and machinery and equipment rose 2.9% q/q and 0.9% q/q, respectively. The release noted that "investment in engineering structures rose 3.5%, as spending on the Kitimat LNG project in British Columbia and oil and gas activity increased."
• Terms-of-trade rose 4.2%, as higher export prices (up 7.1% q/q) "were again heavily influenced by the rising price of crude oil." Export prices rose strongly in other areas also, including "lumber (+25.0%), electricity (+24.8%) and refined petroleum products (+21.2%), reflecting continued price pressures due to supply constraints."

Key Implications

• GDP missed the mark, with expectations heading into the release looking for +5% growth (q/q annualized). This was largely due to weaker household consumption, with service spending failing to pick-up as expected given the reopening that was underway. Layering on the weak flash estimate for April, it is clear that Canada's economic momentum is slowing. Though this was expected given rising inflation and high interest rates, the deceleration is occurring much quicker that previously thought. 
• We don't think this will change the Bank of Canada's thinking at its meeting tomorrow. We expect the Bank to hike by another 50 basis points, followed by another 50 in July. Bond markets aren't reassessing either, with the 10-year Canada yield up another 10 basis points this morning.            

Disclaimer

This report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.