The Canadian economy expanded at a disappointing 1.2 per cent at an annual rate in the first quarter or 2014. Growth was dragged lower by a slowing in household consumption as well as a decline in business investment and exports. The latter was at least in part caused by a sharp slowdown in the US economy in the first quarter.
In spite of a weak start to 2014, we expect the Canadian economy will accelerate this year. The setback in the US economy in the first quarter was largely the result of severe winter weather, and recent job growth and other indicators point to a sharp reversal in growth in the second quarter. As the US economy expands, the Canadian economy should gain momentum, fueled by higher exports and business investment. For now, weakness in first quarter economic growth likely offsets the recent rise in inflation in the minds of policymakers at the Bank of Canada.