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Treasury
Canada's Economic Recovery Called Into Question, says Commerzbank
It is rare for economists surveyed by Bloomberg to be so wide of the mark as they were in their predictions for Canada's gross domestic product released on Friday, said Commerzbank.Instead of growing by 1.5%, the real economy contracted by 0.1% in Q1 on a quarter-over-quarter annualized basis, noted the bank. At the same time, the figure for Q4 2025 was revised downwards from a 0.6% contractuon to a 1% drop.Some market participants had hoped that the Canadian economy was poised for recovery this year, noted Commerzbank. However, the growth figures have now definitively called the recovery into question, despite the labor market having already sent many warning signals, the bank said.The lack of a recovery makes potential interest rate hikes by the Bank of Canada highly questionable, according to Commerzbank. For stronger growth to return, the war in Iran must end soon and relations with the United States must improve, it added.The bank "strongly" believes this will take several more months and as such it doesn't expect an interest rate hike until this December at the earliest.As a consequence, those anticipating lower USD/CAD levels should continue to focus on a weaker US dollar (USD) rather than a stronger Canadian dollar (CAD or loonie), it said.
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Treasury
BMO on The Day, Week Ahead in Canada
Bank of Canada Senior Deputy Governor Carolyn Rogers will appear before the House of Commons Standing Committee on Public Accounts in Ottawa at 12 p.m. ET Monday, said Bank of Montreal (BMO).Monday at 9:30 a.m. ET, the S&P Global Canada Manufacturing PMI for May will be released.The data run this week culminates with the Labour Force Survey (LFS) on Friday, noted the bank. Canada is expected to add 8,000 jobs in May, leaving the unemployment rate unchanged at 6.9%.The Canadian economy contracted 0.1% annualized in Q1, which throws some cold water on the 2026 growth call. BMO now has real gross domestic product growth at 0.5% for the year, down from 1.0% previously.If you read all about the "technical recession" over the weekend, Canada just isn't there yet, stated the bank. Suffice it to say that the economy has been slumping long enough -- a full year -- but hasn't contracted deep enough, nor have the declines been widespread enough to stack up to a traditional recession.
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Treasury
Canada's Economy Stalls Ahead of Trade Negotiations Wth The U.S., Says TD
Canadian Q1 gross domestic product showed the economy effectively stalled, contracting 0.1% quarter-over-quarter annualized, undershooting expectations, said TD after Friday's GDP data.The weakness was broad-based, noted the bank. Strong import growth dragged down the top-line figure, but final domestic demand declined again and continues to proceed in "fits and starts." Looking through the volatility final domestic demand is up 1.3%, but this is still a below-trend figure, and consistent with an economy operating below capacity.Overall, the economy continues to muddle along with limited forward momentum, stated TD. While early Q2 indicators suggest some rebound, with April GDP tracking higher, the broader trend still points to slack in the economy and subdued growth.Canada's lackluster growth performance puts the focus squarely on the upcoming CUSMA trade deal review, according to the bank. The economy has operated under the cloud of uncertain United States market access ever since the first tranche of tariffs was announced last year.On Monday, the three countries are due to notify each other of what changes they want in the agreement, with discussions to follow, pointed out TD. The U.S. and Mexico have already scheduled formal negotiating rounds. Minister for U.S.-Canada Trade Dominic Leblanc is expected to travel to Washington this week, but the timelines for negotiations remain unclear.To find some insights on the negotiations, Prime Minister Mark Carney's speech in New York last week highlighted Canada's strategy. He called for a "new partnership" with the U.S., while simultaneously positioning Canada's goal to establish itself as an "energy superpower."Recent foreign direct investment data suggest there might be something to the strategy, added the bank. Q1 inflows were reported at $22 billion, or $4 billion less than in Q4, and investments in the energy and mining sector were $14.7 billion in the quarter. While this data is volatile, it aligns with Canada's strategy to leverage its resource base and attract long-term capital.The Canadian economy continues to muddle along under a cloud of trade uncertainty. The hope is that in the coming months, clarity and stability on the trade relationship with the U.S. will emerge. Increased economic certainty, together with the push to attract global capital to invest in Canada, can lay the foundation for productivity-powered economic growth.
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