By Orbex

Statistics Canada will be releasing the monthly GDP for the month of March and also the first quarter GDP report today.

The data comes as the Bank of Canada held interest rates steady at its monetary policy meeting earlier this week. The somewhat busy week for the CAD will be capped with the GDP report due to come out later today, alongside other data.

Forecasts show that the first quarter GDP will expand at a pace of 0.9% in annualized terms. This would mark a second quarterly decline in growth. In the previous quarter, Canada’s GDP growth was slower at 1.6%.

On a month over month basis, March GDP could be expanding at a pace of 0.4%. This marks an increase from February’s GDP which fell 0.1%.

Canada GDP Likely to Improve Into Q2

GDP growth in Canada is expected to rise, with a boost from non-residential investment. Consumer spending and domestic consumption are other factors that will contribute to the uptick in GDP growth.

To add to this, the growth in the employment sector points to a pick up in growth both on a monthly basis and in the handover to the Q2 period.

To the downside, trade tensions remain an issue and could weigh on the headline growth numbers. The monthly reports indicate that real imports expanded strongly in the three months ending March. But real exports fell during the same period.

Residential investment has been weak, according to construction data. This could influence the overall Q1 GDP growth as a result.

With economists expecting the March GDP data to show a 0.4% expansion, the handoff to the second quarter is optimistic. The gains come from the wholesale and retail sectors.

The balance of payments report is also due today. The data could show Canada’s current account deficit rising to $18 billion Canadian with the goods trade balance deteriorating.

Growth Concerns Remain on Manufacturing & Housing Markets

Despite the overall positive headline, some contributing factors to the GDP growth remain a concern.

Canada’s trade deficit is currently the highest since Q2 of 2016. This potentially suggests that despite lower trade tensions between the US and Canada, the trade deficit is yet to recover.

The manufacturing sector in Canada fell below the key 50-level on the index. This indicates a contraction in the manufacturing sector. Overall construction report indicates that housing starts were down 9.9% in the first quarter of this year.

Therefore, the housing markets continue to remain in a slump. But for the most part, the negative data is seen as a lagging effect from the last quarter of 2018. The soft patch of growth was evident during the last two quarters of 2018.

Oil prices also played a role during the previous two quarters.

The bright spot, however, is the Canadian labor market. Data has shown that Canada’s labor market has been improving strongly over the past few months. This gives weight to increase in domestic demand and consumption.

The most recent labor market data showed that Canada’s unemployment rate fell to 5.7%. This marks a four decade low. Job gains got a boost mostly from an increase in full-time jobs.

Therefore, over the next few months, Canada’s GDP could see a boost from the improving labor market conditions. This could potentially offset the worries in the housing market. The optimism that a new trade deal will be reached with the United States also adds to the view that growth will improve over the coming months.

With the Bank of Canada holding back on rate hikes and staying neutral for the moment, the stable interest rate period alongside improving labor markets could see Canada’s growth recovering.

By Orbex