Canada’s GDP grew at an annualized fee of two.2% within the first quarter of the yr, matching the final quarter of 2024 and defying expectations of a tariff-driven financial stall.

Based on Statistics Canada, the rise was pushed by an increase in each imports and exports, particularly of tariff-affected merchandise, like vehicles, oil and fuel, industrial equipment, gear and elements.

That, nonetheless, has some economists nervous that the robust headline was pushed by a pre-tariff shopping for spree as prospects rushed orders forward of an anticipated worth hike, and may be hiding some extra worrying financial tendencies. For instance, manufacturing, utilities, residential building, family spending and family financial savings have been all trending downward.

Defying fee expectations

Previous to the newest GDP reporting, nearly all of Canada’s main monetary establishments have been betting on a June fee minimize. Now, many have needed to stroll again these forecasts.

In reality, as of a couple of month in the past, BMO, CIBC, National Bank and RBC have been forecasting a 25 bps minimize in June, with TD going a step additional, suggesting we might see one other 50 bps discount. TD has since revised that outlook.

Among the many nation’s main monetary establishments, solely Scotiabank had predicted no change to charges—a view the others now seem to share, not less than for this week’s assembly.

Why the BoC might wait longer to chop

In a submit titled “No approach the Financial institution of Canada Ought to Be Chopping,” Scotia’s Derek Holt argued that underlying inflation pressures stay too persistent to justify additional easing.

“There isn’t a approach that the BoC needs to be reducing any time quickly, if in any respect,” Holt wrote, pointing to persistently elevated core inflation—even earlier than the total influence of tariff-related provide shocks units in.

He added that April’s inflation information got here in hotter than the Financial institution’s personal projections. “Regardless of modest slack, different forces are maintaining core inflation at sticky, elevated ranges,” he famous.

Now, on the heels of a better-than-expected GDP report, different main banks are actually echoing Holt’s extra cautious outlook.

“The important thing level right here is that the GDP figures are sending no apparent misery alerts to this point in 2025,” wrote BMO Chief Economist Douglas Porter in an update following the GDP announcement. “With this sturdy set of outcomes, we’re formally abandoning our name of a fee minimize subsequent week and now search for the following fee trim eight weeks therefore on the late-July choice.”

Porter suggests the robust GDP studying might mirror an excessively pessimistic view of the Canadian financial system, and an over-estimation of the influence tariffs would have. He means that, whereas shares took a beating within the early a part of the yr, they bounced again rapidly. Enterprise and client sentiment additionally seems to be recovering after turning bitter within the wake of the tariff bulletins. 

If the market certainly overestimated the impacts of the commerce conflict, and if the financial system stays comparatively regular whereas core inflation stays comparatively excessive, the Financial institution of Canada might not be inclined to chop charges as aggressively or rapidly as most had anticipated this yr.

“All of this provides as much as a much less urgent want for financial coverage to help the financial system,” Porter wrote. “The back-up of core inflation to above 3% will hold the Financial institution extra cautious, suggesting that charges will probably be held regular at (this) week’s choice. We proceed to consider that this isn’t the tip of the road for fee cuts, however we’re formally pushing again our timing of these trims, to restart in late July, and maybe stretching into early subsequent yr.”

As of Friday, bond markets have been pricing in only a 32% probability of a fee minimize on the June assembly, signalling a robust consensus for a maintain. Expectations for July, nonetheless, remained excessive, with markets assigning a 75% chance to a 25-bps minimize.

BoC coverage fee forecasts from the Large 6 banks

Right here’s a have a look at the place Canada’s huge banks at present stand forward of this week’s fee choice—most have now shifted towards anticipating a maintain, following stronger-than-expected GDP information.