UPDATE 2-Canadian economic recovery hits snag in April amid COVID-19 surge

(Recasts on April data, adds economist comments)

By Julie Gordon

OTTAWA, June 1 (Reuters) - Canada's economy likely contracted in April, the first decline in a year, due to widespread lockdowns amid a third wave of coronavirus infections, slowing the country's march toward recovery, data showed on Tuesday.

In a preliminary estimate, Statistics Canada said the economy contracted 0.8% in April. By contrast, real GDP had grown 11 months in a row through March, when it grew 1.1%. Economists said the April decline was largely expected and is unlikely to change the Bank of Canada's outlook for interest rate hikes. "They were talking about the output gap and inflation getting back to target by late 2022. That's still a long way from here," said Doug Porter, chief economist at BMO Capital Markets.

The Bank of Canada last month signaled rates could begin to rise in 2022, noting the economy had rebounded more quickly than it had expected.

The Canadian economy grew 5.6% on an annualized basis in the first quarter, as restrictions were eased between the second and third waves of COVID-19, and buoyed by strong housing investment and more mortgage debt. The gain missed analyst expectations of 6.7%.

Still, the economy is in a good position to hit the Bank of Canada's GDP forecast of 6.5% for the year, said economists, meaning it will likely ease some stimulus this year.

"I think the Bank of Canada is going to regard this as roughly in line with their forecast," said Andrew Kelvin, chief Canada strategist at TD Securities.

"It's going to leave us on track for more tapering in July, and in October, and ultimately going to no more QE (quantitative easing) once we get to 2022."

Many Canadian provinces imposed strict public health measures and closed many non-essential business in April amid a harsh third wave of COVID-19 infections. With April's contraction, economic activity was likely about 2% below pre-pandemic levels, Statscan said.

The Canadian dollar steadied at about near 1.2030 per U.S. dollar, or 83.13 U.S. cents, up 0.3% on the day. (Reporting by Julie Gordon in Ottawa; additional reporting by David Ljunggren and Steve Scherer in Ottawa, Maiya Keidan and Fergal Smith in Toronto; Editing by Nick Macfie and Jonathan Oatis)