Canada's economy recovered at an annualized rate of 1.7 percent in the first quarter, rather weaker than the 2.3 percent consensus expectation.

GDP was up 0.4 percent on a quarterly basis in the first quarter after a revised flat showing in the fourth quarter, down from 0.2 percent initially reported. A big downward revision for the fourth quarter in the year-over-year growth rate to 0.1 percent from 1.0 percent previously reported was a nasty downside shock.

The soft showing in the first quarter and much weaker fourth quarter adds rocket fuel to the argument that the Bank of Canada will cut rates by 25 basis points at its governing council meeting next week. Going into today's report, forecasters appeared evenly split between calling for no change or a rate cut.

Household spending rose by 0.7 percent on a quarter-over-quarter basis in the first quarter, led by a 1.1 percent rise in services spending. This mostly reflected spending on telecommunications services, rent and air transport. Household goods spending rose by a modest 0.3 percent, paced by spending on motor vehicles.

A slower pace of business inventory accumulation subtracted from GDP in the first quarter. Most industries saw a slower rise in inventories: weakest were retail motor vehicles where inventories rose at half the pace of the fourth quarter.

A 2.3 percent annualized growth rate is the consensus for Canadian first-quarter GDP versus 1.0 percent expansion in the fourth quarter.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no quarterly flash estimate and the first report is typically not issued until around the end of the second month after the reference period. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of the GDP expenditure components.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. Unlike the U.S., Canada produces only one estimate per quarter once full data are available for all components. Most production reports that lead to Canadian GDP are released before the official GDP number. Therefore, actual GDP figures usually confirm expectations. However, an unexpected release can move markets due to the significance of the figure.

GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower.

Robust GDP growth signals a heightened level of economic activity and often a higher demand for the domestic currency. At the same time, economic expansion raises concerns about inflationary pressures which may prompt monetary authorities to increase interest rates. Thus positive GDP readings are generally bullish for the Canadian dollar, while negative readings are generally bearish.