Economy still growing, but slightly slower

OTTAWA — Canada’s pace of economic growth slowed in the first quarter, but the economy is still improving, Statistics Canada says.

The growth is slower than in past months, but the weakerthan-expected data did little to dampen economists’ predictions of an interest rate hike.

Statistics Canada says the economy grew at an annualized pace of 1.3 per cent for the first three months of the year, slower than the annual pace of 1.7 per cent in the final three months of 2017. Economists had expected growth to come in at an annualized rate of 1.8 per cent for the first quarter of 2018, according to Thomson Reuters Eikon.

The slow start to the year was largely attributed to a pull back in the real estate market amid new mortgage stress test rules and a cooling housing market. The 1.9 per cent drop in housing investment was the largest decline in almost 10 years.

However, economists pointed to the strong growth in March to end the quarter and suggested the report did little to change expectations for an interest rate hike by the Bank of Canada in the coming weeks.

“While the headline quarterly GDP result was a bit disappointing, even to those of us who were on the low side of consensus, the recent robust monthly readings and the strength in business investment provide a nice counterweight,” Bank of Montreal chief economist Doug Porter wrote in a report.

“The main point is that growth for the full year still looks on track to come in around two per cent, which is very much in line with what the Bank of Canada has been expecting.”

Porter noted that the economy posted growth of 0.3 per cent in March, the final month of the quarter, helped by the mining and oil and gas sector and gains in both wholesale and retail trade.

“The sturdy March result provides a nice hand-off for Q2,” he said.

The growth rate of 1.3 per cent for the first quarter matched the Bank of Canada’s forecast in its April monetary policy report.

The central bank elected to keep its key interest rate on hold Wednesday, but raised expectations that rate hikes are coming when it dropped a reference to remaining “cautious.”

Economists interpreted the change as a signal that the next rate increase would be sooner rather than later.

Their rate-hike expectations largely remained intact even as Thursday’s report showed the rate of growth for real gross domestic product in the first quarter was the slowest since the economy contracted in the second quarter of 2016.

Growth in that quarter was affected by forest fires that destroyed parts of Fort McMurray, Alta., and forced the shutdown of several oilsands operations in the region.

The most recent GDP report showed household spending increased 0.3 per cent, the slowest pace since the first quarter of 2015, while household spending on services increased 0.5 per cent and spending on goods was unchanged.

Growth in export volumes slowed to 0.4 per cent compared with one per cent in the fourth quarter of 2017. The gains were mainly contributed by crude oil.