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National Bank Sees Canada's GDP Growing 1.0% This Year But Trade Uncertainty Is Main Risk

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The Canadian economy remains under pressure despite the resource sector's strong performance, as trade tensions with the United States continue to hold back non-resource exports, said National Bank of Canada.

Amid this climate of uncertainty, the labor market is experiencing its worst start to the year since 2009 -- excluding the COVID-19 pandemic -- with widespread job losses, particularly acute in Quebec, noted the bank.

Rising oil prices linked to geopolitical tensions are eroding household purchasing power, weighing on consumption, while rate increases and population contraction are further dampening real estate activity, stated National Bank.

Despite the energy shock, underlying inflationary pressures remain contained in Canada, in stark contrast to the U.S., which argues for the Bank of Canada to maintain the status quo this year, added the bank.

In National Bank's baseline scenario, the Canadian gross domestic product is projected to grow by 1.0% this year, supported by a renewal of the CUSMA trade deal, although trade uncertainty remains the main risk to the economic outlook.

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Commerzbank on Overnight News

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Gasoline Prices to Hit Canada's Consumers, Says BMO

Canadian consumers have been hanging on, spending their way through significant headwinds, including economic uncertainty and outright population decline, said Bank of Montreal (BMO).Unfortunately, the most recent shock -- in the form of higher energy prices -- will prove a tougher challenge, noted the bank.The March retail sales report showed headline spending rose 0.9% in the month, but that was entirely due to higher gasoline prices. Sales volumes fell 0.7% month over month, although earlier strength still leaves real spending up in Q1.Indeed, real spending stepped up "meaningfully" in per capita terms, stated BMO."Unfortunately," the softness in March looks to continue as prices remained elevated -- gasoline increased again, by almost 10% in April alone, pointed out the bank.The flash estimate for April points to a modest increase, but volumes could potentially decline for the second straight month, added BMO.While it's been an impressive showing for Canadian consumers so far, the spike in prices is leaving a mark. Ultimately, spending looks to remain under pressure until energy prices "normalize," according to the bank.

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