The Canadian economy's strong bounce back at the start of the year appears to have been short-lived, as new data suggests growth is on a downward trajectory.
Statistics Canada said Friday that the economy grew by 0.1 per cent in February. Its preliminary estimates suggests real gross domestic product grew at an annualized rate of 2.5 per cent in the first quarter, and contracted in March.
RBC assistant chief economist Nathan Janzen said the quarterly growth, compared to the last decade, is a "respectable pace of growth."
"But if you look at the monthly details, you just see that all of that increase came from January," Janzen said.
After a slowdown in business inventories brought down growth to zero in the fourth quarter, the Canadian economy bounced back with 0.6 per cent growth in January.
Meanwhile, February's figure came in lower than was expected by Statistics Canada as wholesale and retail trade as well as manufacturing all contracted.
Boosting real GDP in February was growth in the public sector, professional, scientific and technical services, construction and finance and insurance.
An economic slowdown has long been expected as interest rates have climbed higher. And while some economists had anticipated that slowdown to appear earlier, signs of weakness are now becoming more apparent.
"After sprinting out of the gate to start 2023, the Canadian economy had already hit a wall by March," CIBC economist Andrew Granthan wrote in a client note.
The federal agency's preliminary estimate for March suggests the economy contracted by 0.1 per cent.
The expected dip in real GDP is driven by continued declines in wholesale and retail trade, in addition to mining and quarrying.
But Grantham said the new data shouldn't change much for the Bank of Canada's outlook, which is holding its key interest rate steady at 4.5 per cent, the highest it's been since 2007.
"Until there are clearer signs that slowing growth is also helping to ease core inflation, the Bank of Canada will continue to lean towards raising interest rates, even if a hike is not ultimately needed, with rate cuts not coming until 2024," Grantham said.
This report by The Canadian Press was first published April 28, 2023.
Nojoud Al Mallees, The Canadian Press