By Ismail Shakil
OTTAWA (Reuters) -The Canadian economy expanded at an annualized rate of 1.7% in the first quarter, missing forecasts, and real gross domestic product likely rose 0.3% on a monthly basis in April, data showed on Friday.
The data prompted financial markets to increase bets on a 25 basis point interest rate cut next week to almost 80% from 66% earlier.
The quarterly growth rate was slower than the 2.2% pace forecast by analysts in a Reuters poll, as well as the Bank of Canada’s (BoC’s) 2.8% forecast. Fourth-quarter GDP growth was revised to an annualized rate of 0.1% from 1.0% reported initially, Statistics Canada data showed.
The GDP report shows that Canada’s economy did not rebound from a soft patch last year as strongly as data initially suggested, and may convince the central bank to start lowering borrowing costs in June.
The loonie rose 0.29% to trade at 1.3638 per U.S. dollar, or 73.32 U.S. cents, by 1241 GMT. Two-year Canadian government bond yields fell 5.4 basis points to 4.321%.
Friday’s report is the last major data to be released ahead of the BoC’s interest rate announcement on June 5, when three-quarters of the 29 economists polled by Reuters expect a 25 basis-point cut.
Growth in the first quarter was driven by higher household spending on services, Statscan said, adding that slower inventory accumulations moderated overall growth.
On a per capita basis, household final consumption expenditures edged up 0.1% in the first quarter, after three quarters of declines, the statistics agency said. Per capita spending on services increased 0.5%, while per capita spending on goods declined for the tenth consecutive quarter.
On the month, GDP growth was flat in March from February, matching forecasts. While both goods-producing and services-producing industries stayed essentially unchanged, the construction subsector recorded a 1.1% rise in March, the largest monthly growth rate since January 2022, Statscan said.
In an advance estimate for April, Statscan said GDP likely rose 0.3% as increases in manufacturing, mining, quarrying, and oil and gas extraction and wholesale trade were partially offset by decreases in utilities.
April’s forecast means the economy started the second quarter on a positive note. The BoC, in economic forecasts released last month, said it expects a 1.5% annualized growth rate in the second quarter.
After the BoC held its key policy rate a 23-year high of 5% in April, Governor Tiff Macklem said a cut in June was possible if inflation continued to cool towards a 2% target.
(Reporting by Ismail Shakil and Dale Smith in Ottawa; Additional reporting by Promit Mukherjee; Editing by Kirsten Donovan)