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CIBC on The Week Ahead in Canada's Economics

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The Bank of Canada is likely to push back on the view that two consecutive quarters of gross domestic product contraction constitute a recession, given that the magnitude of the decline is small and well within the range of future data revisions, as well as evidence that the economy is rebounding again in Q2, said CIBC.

The BoC is slated to release its policy decision on Wednesday at 9:45 a.m. ET.

However, the BoC will have to concede that, looking through the volatility, the 1% average growth rate Canada seems to be tracking for the first half of the year is a touch weaker than it had previously been forecasting, accoriding to CIBC.

In addition, with GDP data showing continued weakness in interest rate-sensitive sectors of the economy, the BoC should be questioning just how much -- if at all -- the current interest rate setting is spurring growth and inflation, stated the bank.

So Wednesday's statement and press conference are likely to continue to point to the two-sided risk for interest rates, added CIBC. Higher oil prices and inflationary pressures could warrant interest rate hikes at some point, but the potential for higher tariffs if CUSMA negotiations don't progress well could warrant further cuts.

Investors should be wary of paying too much attention if the word "consecutive" is used again in reference to a potential rate hike scenario, because the BoC is also likely to suggest

that nothing is imminent at this stage and that policymakers are more than happy to wait to see how these risks play out, added the bank.

Also on the calendar this week is the international merchandise trade figures for April on Tuesday; and on Thursday, April building permits and Q1 capacity utilization.

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