‘False alarm’ on recession: economists react to April’s GDP numbers

The Bank of Canada building in Ottawa. Photo by HYUNGCHEOL PARK/Postmedia files

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The rebound from a 0.1 per cent contraction in March was driven by strength in mining, quarrying, and oil and gas extraction, Statistics Canada said Tuesday.

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Economists say the bounce back should be enough to quiet recession talk, but not quite enough to move the Bank of Canada on interest rates. Here’s what some of them had to say about the latest GDP numbers.

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‘Broad-based’ growth: TD

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“The bigger message here is that this reading should take some air out of the recent ‘technical recession’ narrative,” Toronto-Dominion Bank economist Marc Ercolao said in a note. “The economy is grinding through a soft patch, but household demand is still providing support to activity, while trade exposed industries are pointing to a tentative recovery.”

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This argues for “patience rather than a pivot” for the Bank of Canada, Ercolao said. TD expects the central bank to hold its benchmark interest rate at 2.25 per cent as “firmer near-term growth lowers the urgency to ease” and inflation remains “contained for now.”

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April’s growth was “broad-based,” Ercolao noted, with 14 out of 20 industries registering increases. Growth in goods-producing industries reversed last month’s decline, while the services sector grew for the third month in a row.

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Ercolao said this points to “a better handoff into the second quarter, with Q2 growth now tracking above two per cent annualized.”

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‘False alarm’ on recession: BMO

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“The Canadian economy seemingly shook off the winter blues all at once” in April as manufacturing, construction, rail transportation and pipeline activity all rebounded in sync, Bank of Montreal chief economist Doug Porter said in a note.

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Porter said the second quarter started on “solid footing,” and there is “substantial upside” to BMO’s estimate of one per cent GDP growth in the quarter, which ends June 30.

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“If these numbers hold, Q2 is on track for growth of over two per cent,” Porter said.

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StatCan’s advance estimate for May says real GDP increased by 0.1 per cent.

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“A more moderate gain in May GDP will serve as a reminder that Canada is still growing slower than potential, so no one should mistake the April bounce as a sign of a robust economy,” Porter said. “Nevertheless, it’s also clear that the small two-quarter dip in output was a false alarm on the recession watch.”

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Rate hikes ‘a long way off’: Capital Economics

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April’s stronger-than-expected gains put second-quarter growth on track to “rebound strongly,” Thomas Ryan, North America economist at Capital Economics Ltd., said in a note.

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“While this should put a firm end to any debate about whether the economy is in recession, growth over the first half of the year is still set to average considerably below the Bank of Canada’s forecast, supporting our view that rate hikes are a long way off,” Ryan said.