Economists says Canada’s latest GDP figures raise the odds of further rate hikes from the Bank of Canada, though the central bank may wait for more data before stepping off the sidelines.

Statistics Canada reported on Wednesday that the country’s economy grew at an annualized rate of 3.1 per cent in the first quarter of 2023, beating StatsCan’s own 2.5 per cent forecast.

An early estimate for April showed economic growth of 0.2 per cent after a flat reading in March.

The figures show continued resilience in the economy as the Bank of Canada fights to bring down high inflation, and it might encourage the central bank to break from its pause in its interest rate tightening cycle earlier than many expected, economists said.

Derek Burleton, deputy chief economist at TD Bank, told BNN Bloomberg that it “wouldn’t be a shock at all” if the Bank of Canada hiked rates next week, given signs of strength in the second quarter.

“This would tilt that rate hike odd sometime over the summer even higher than it was before,” he said in a television interview.

While an increase at next week’s decision isn’t out of the question, Burleton said he sees a July rate hike more likely, as the central bank will have had more data to look at related to the labour market. Statistics Canada will next report on the jobs market on June 9, two days after the Bank of Canada’s June 7 meeting.

“They may just want to take a little bit longer to reflect on things,” Burleton said. “I do see July being a higher probability than June.”

Other economists expressed similar views after the Wednesday morning GDP snapshot.

Andrew Grantham with CIBC Economics said in a note that the April estimate was stronger than expected, particularly as the strike by federal public service workers would have dragged on the economy during that month.

“Overall, the headline reading, composition of growth and handoff to Q2 were all slightly stronger than we had expected, raising the odds of another Bank of Canada rate hike,” he wrote.

“However, we still expect that they will want to wait to see more data and revise their forecasts (in the July monetary policy report) before making a final decision on whether to raise rates again, rather than hike next week.”

A note from Desjardins’ Royce Mendes noted that the 3.1 per cent annualized economic growth “sailed past” most forecasts from economists and the Bank of Canada, and the apparent “solid footing” for the start of the second quarter in April.

Those factors, along with the acceleration of household spending, make a summer rate hike more likely, he said.

“It seems likely the Bank of Canada will be seriously considering raising rates next week,” he wrote.  “While they might pass on changing course just yet, the belief that the central bank will further tighten policy this summer is justifiably gaining traction.”

Stefane Marion, chief economist at National Bank of Canada, meanwhile, said he thinks increased rate hike expectations were an overreaction to Wednesday’s data and he thinks a June or July increase would come too soon.  

He pointed to signs in the StatsCan report of declining business investments and profits, which suggest effects of the steep interest rate hikes from the past year are starting to take hold.

The central bank should wait for future data points on inflation and the economy before deciding to act, potentially in the fall, he said.

“I think it would be premature for the central bank to start hiking in June just because the Q1 data was stronger than expected,” Marion told BNN Bloomberg in a television interview.

“Perhaps the best thing to do is to stay right in the middle right now.”