Last week Statistics Canada reported that Canadian Q1 GDP declined 0.6% vs. a prior estimate of a 0.3% rise. This decrease is notable as it exceeded all 22 economist forecasts in a Bloomberg News survey with a median estimate of a 0.3 percent expansion. In addition, the drop was the most significant since the 2009 recession and was the first decline since 2011. This has caused the Canadian dollar to weaken further as represented by CurrencyShares Canadian Dollar Trust (NYSEARCA:FXC).

More specifically, economic activity decreased in almost every category. Of note was a 9.7% annualized fall in business gross fixed capital formation and a 0.4% annualized decrease in consumer spending which was the slowest since the start of 2009. In addition, exports fell 1.1 percent, the second straight quarterly decline and imports dropped 1.5 percent. Bank of Montreal chief economist Doug Porter stated that BMO's overall 2015 projection have been chopped down to 1.5% GDP growth which would be the slowest growth for Canada - outside of recession - in at least the past three decades. As for CIBC, their forecast has come in even more bearish, predicting that the Canadian economy will only grow 1.4% this year.

This data seemed to validate Bank of Canada governor Stephen Poloz's comment earlier this year that Canada's first-quarter numbers would look "atrocious". Statistics Canada indicated that this poor reading was linked to collapsing energy prices and a plunge in business investment. Bank of Canada held its borrowing rate at 0.75%, stating that consumer demand "is holding up well" and that the current stimulus was enough to prevent a downturn.

Nevertheless, some commentators have suggested that in light of this fresh round of sluggish data, interest rates are looking flexible again. Will the weakness in the Canadian economy persist? Several key indicators will be considered.

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