Canada's Q1 GDP release surprised sharply on the downside

Reflecting the negative impact of lower oil prices, Canada's economy contracted 0.6% (annualized rates) in the first quarter, the worst showing since Q2 2009. This is a marked deceleration from the 2.2% pace in Q4 (revised down from 2.4%), and well below the 0.3% advance expected by markets. The Q1 print also came in below the Bank of Canada's call for no growth in the quarter.

Today's Q1 GDP release surprised sharply on the downside, coming in well below consensus and the Bank of Canada's call for no growth in the quarter. There were few bright spots in the quarter, as the sharp decline in oil prices fed into lower corporate profits and real investment in non-residential structures.  

That said, the notable advance in personal disposable income growth and the savings rate provides a modest silver lining. However, some of this spike in personal incomes reflects an increase in one-off payments by the federal government to its employees, and so enthusiasm should be appropriately dampened in this case as well.

"Today's release calls into question the view that the Bank of Canada will remain on hold until 2016. Depending on how the U.S. economy continues to shape up in Q2, the balanced language accompanying Wednesday's interest rate announcement may give way to a much more dovish tone in the July Monetary Policy Report and an increased weight on the view that a cut may be around the corner." notes TD Economics