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Research Brief

Canada GDP

June 2024


Odds Increase for June Rate Cut as Economic
Growth Comes in Softer than Expected

Canada’s economy continues to expand. Real gross domestic product grew at an annualized rate of 1.7 per cent in the first quarter. This was driven by higher household spending on services, while slower inventory accumulations moderated overall gains. Despite economic growth being up from the annualized rate of 0.1 per cent in the fourth quarter of last year, it was slower than the 2.2 per cent pace forecast by analysts, as well as the Bank of Canada’s 2.8 per cent estimate. This softer than expected growth indicates the nation’s economy did not rebound as strongly as initial data suggested, with the full impact of elevated borrowing costs continuing to be absorbed. Moderating growth lends further support to a midyear interest rate cut, with money markets increasing their bets for June.

Likelihood of June interest rate cut builds.
Headline and core inflation have trended down for four consecutive months, now both within the Central Bank’s target range. While Canada’s economy continues to add jobs, the unemployment rate is up 100 basis points from a year ago and wage growth has shown signs of easing. These factors, combined with real GDP performing well below potential and only expanding by a marginal 0.5 per cent year-over-year as of the end of the first quarter, have increased the likelihood of a June interest rate cut. Prior to the GDP announcement, money markets were pricing in a roughly 65 per cent chance, while just following those odds increased to approximately 80 per cent. Interest rates trending down over the second half of the year will aid economic growth, as well as commercial real estate space demand and overall investor sentiment. 

Commercial Real Estate Outlook

Consumers continue to spend. Canada’s retail property sector is continuing to show healthy performance. The nation’s vacancy rate sat just below 2.0 per cent as of the end of the first quarter, supporting annual rent growth outpacing that of inflation. These healthy fundamentals are due in part to limited property supply and an uptick in consumer savings, but more so because of Canada’s rapidly rising population. It has expanded at a near record-setting pace of 3.2 per cent annually over the first three months of 2024. Final household consumption was up 3.0 per cent annualized in the first quarter, whereas final domestic demand grew 2.9 per cent. These robust spending measures are continuing to support retail space demand and generating positive investor sentiment. This is especially true for essential and anchor-based retail as these assets continue to capture a larger share of spending in times of economic headwinds.

Energy sector aids GDP growth.
Business investment rebounded by 3.1 per cent annualized in the first quarter, led by increased investment in the oil and gas sector. This is likely due to firms preparing for the opening of the Trans Mountain Pipeline expansion, which began operations in May. Looking ahead, the completion of this project is set to nearly triple the flow of crude oil from Alberta to export markets, which will benefit economic growth over the coming years. The pipeline expansion will support industrial space demand within the Edmonton and surrounding Alberta areas. This region  is home to oil and gas servicing companies and with production set to increase, servicing providers will be needed to assist with the logistics of the added capacity.


* Through 1Q; ** 100 = 1Q 2021
Sources: Marcus & Millichap Research Services; Altus Data Solutions; Bank of Canada;
Capital Economics; CoStar Group, Inc.; Statistics Canada

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