Commentaries /

Q4 2023 GDP: Pretty good news as the economy holds footing

Q4 2023 GDP: Pretty good news as the economy holds footing

Canada’s economy navigated through a potential rough spot in the fourth quarter, with help from exports and consumer spending on autos, as supply chain backlogs continued to ease.

Author's image
Andrew DiCapua

Canada’s economy navigated through a potential rough spot in the fourth quarter, with help from exports and consumer spending on autos, as supply chain backlogs continued to ease. Fourth quarter GDP grew 1% at annual rates (slightly above the market consensus of 0.8%), and growth in the third quarter was revised up. Canada also enjoyed a decent start to 2024 in January with the end of Quebec’s public sector strike. With the economy generally holding up, the Bank of Canada has time to hold rates and stay the course into the summer. That said, there are evident signs of underlying weakness in Canada’s economy—notably real per capita consumption, business investment, and housing resales.

Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

  • Canada’s real gross domestic product (GDP) grew by 1% annualized in the third quarter, posting stronger growth than markets expected (+0.8%). This follows upwardly-revised third quarter growth of -0.5% (previously reported at -1.1%). Q4 growth was primarily driven by higher exports and consumer spending, while housing and business investment declined.
  • Monthly GDP by industry was flat in December, despite economists expecting 0.2% m/m growth and a strong flash estimate of 0.3%.

Movers and Shakers

  • Higher exports and reduced imports contributed to Q4 GDP growth, although a decline in business investment moderated the overall expansion.
  • Exports of goods and services rose 1.4%, driven by increased crude oil exports, travel services, and transportation equipment. Conversely, imports declined by 0.4%.
  • Final domestic demand (which includes expenditures on final consumption and gross fixed capital formation) decreased by 0.2% in Q4. On an annual basis, real GDP and final domestic demand increased for the third consecutive year, but the growth rate in 2023 was the slowest since 2016.
  • Household spending increased by 0.2%, primarily due to higher spending on new trucks and utility vehicles. However, per capita consumption expenditures declined for the third consecutive quarter, and overall growth in household spending slowed to 1.7% in 2023.
  • Housing investment declined by 0.4%, marking the sixth decline in the last seven quarters. Business investment also declined for the sixth time in seven quarters, particularly in non-residential structures and machinery and equipment.
  • The household saving rate remained stable at 6.2% in Q4. Corporate incomes increased by 2.9%, driven by the gross operating surplus of non-financial corporations.

OUTLOOK AND IMPLICATIONS

With decent fourth quarter growth, and 2024 off to a surprisingly healthy start, the Canadian economy skirted a potential technical recession in 2023. January’s flash estimate of 0.4% m/m puts Q1 2024 GDP on pace to grow 1.8% on an annualized basis, stronger than the Bank of Canada’s January forecast of 0.5% growth in Q1. The economy is holding up, but economic risks remain, with significant risks to real business investment and further weaknesses in the housing sector in the months to come. Early indications from the Business Data Lab show underlying weakness in consumer spending, which should be a drag on economic activity.

It’s unlikely the Bank of Canada will shift their stance on monetary policy, pushing back market expectations from April of this year. With the economy and labour market stable, the Bank has more time to wait and see further progress on inflation measures. Absent of weaker economic activity, the Bank will need to keep rates in restrictive territory for longer.

SUMMARY TABLE

Sources: Statistics Canada; Bank of Canada
    Commentaries /

    November 2023 GDP: A surprisingly strong temporary rebound

    November 2023 GDP: A surprisingly strong temporary rebound

    With this monthly surprise and a strong December flash estimate, the Canadian economy is likely to grow 1.2% annualized in the fourth quarter, ending the year with 1.5% growth in 2023. This is well above the Bank of Canada’s recent forecast of essentially no growth in the fourth quarter.

    Author's image
    Andrew DiCapua

    The Canadian economy bounced back in November, but let’s not get too excited.

    After three consecutive months of no growth – during which sectors like manufacturing and transportation faced headwinds – some sectors have started to grow again due to rebounds in activity following maintenance shutdowns and the resolution of the St. Lawrence Seaway labour strike. With this monthly surprise and a strong December flash estimate, the Canadian economy is likely to grow 1.2% annualized in the fourth quarter, ending the year with 1.5% growth in 2023. This is well above the Bank of Canada’s recent forecast of essentially no growth in the fourth quarter. The resilience of the Canadian economy and persistence of consumer spending will continue into December based on the Chamber’s spending tracker data. This makes us confident that we’ll end the year on a positive note.

    Andrew DiCapua, Senior Economist, Business Data Lab, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    Headlines

    • Canada’s real gross domestic product (GDP) grew 0.2% in November. This was stronger than markets expected (+0.1% and advanced flash estimate from StatCan).
    • This represents a rebound in activity, following three months of a stalling economy. Although positive, this should not be conflated with an economy set to grow.
    • Output grew in 13 of 20 sectors, led by gains in goods, which were up 0.6% on the month, while services grew a merely 0.1%.

    Movers and Shakers

    • The manufacturing sector accelerated on the month, increasing by 0.9% in November. This was led by a chemical manufacturing rebound following facility maintenance. Non-durable goods manufacturing, particularly textiles and paper led the gains.
    • Wholesale trade rebounded 0.7%, following declines last month of similar magnitude, with personal household goods and motor vehicles accelerating on the month.
    • Transportation and warehousing increased 0.8% in November, rebounding from the impacts of the St. Lawrence Seaway strike. Both rail and truck transportation helped boost November data.
    • The mining, quarrying, and oil and gas extraction sector grew by 0.3% in November. Oil and gas extraction led the increase as a result of strong oil sands extraction growth (+3.8%) following maintenance competition of synthetic oil upgrading facilities.

    OUTLOOK AND IMPLICATIONS

    • StatCan’s flash estimate for December is for growth of +0.3%. Taking this into account, 2023 is on pace to grow by +1.2% q/q annualized.
    • Given the fourth quarter is expected to be much stronger than Bank of Canada’s Monetary Policy Report forecast of 0% for 2023 Q4, all eyes will be on Q1 2024 growth, where the Bank is expecting 0.5% growth.

    SUMMARY TABLE

    Source: Statistics Canada

    CHARTS

    Commentaries /

    October 2023 GDP: It’s beginning to look like a recession-free Christmas

    October 2023 GDP: It’s beginning to look like a recession-free Christmas

    The Canadian economy continues to show signs of weakness. We've now seen three consecutive months of virtually no growth, as key sectors like manufacturing and real estate face notable headwinds.

    Author's image
    Andrew DiCapua

    The Canadian economy continues to show signs of weakness. We’ve now seen three consecutive months of virtually no growth, as key sectors like manufacturing and real estate face notable headwinds. Retail trade grew, but not enough to offset the broader slowdown in other sectors. The St. Lawrence Seaway labour strike in October also brought pain for the transportation sector. Things could go from bad to worse if there is yet another strike at the Port of Montreal to start the New Year.

    All in all, we expect the Canadian economy to grow modestly in the fourth quarter (it’s currently on pace for annualized growth of 0.5% for Q4), thereby avoiding a technical recession. The good news is that two-thirds of businesses are optimistic about the future in the latest CSBC survey, despite continuing to face significant operating challenges. Nonetheless, downside risks remain in the near term for Canada’s economy.

    Andrew DiCapua, Senior Economist, Business Data Lab

    KEY TAKEAWAYS

    Headlines

    • Canada’s real gross domestic product (GDP) was essentially unchanged in October, below market expectations (+0.2%). This represents the third month in a row of an economy with no growth.
    • Output grew in 10 of 20 sectors, led by gains in services once again, which were up 0.1% on the month, while goods was flat.

    Movers and Shakers

    • The manufacturing sector contracted for the fourth time in five months, declining by 0.6% in October. Durable goods manufacturing, particularly machinery and transportation equipment, contributed to the decline.
    • Wholesale trade contracted by 0.7% for the second straight month, with machinery, equipment, and supplies wholesaling leading the decline. Building material and supplies wholesaling was the only subsector that expanded, reflecting higher lumber and millwork.
    • The transportation and warehousing sector declined by 0.2%, influenced by the St. Lawrence Seaway strike. Water transportation contracted significantly, while air transportation and pipeline transportation mitigated the overall decline.
    • Retail trade exhibited growth, increasing by 1.2% in October, marking the largest growth rate since January 2023. Clothing, general merchandise stores, and health and personal care stores contributed to this growth.
    • The mining, quarrying, and oil and gas extraction sector grew by 1.0% in October after two monthly declines. Metal ore mining and non-metallic mineral mining experienced notable increases, while oil sands extraction contracted.
    • Activity at the offices of real estate agents and brokers declined for the fourth month in a row, dropping by 6.8% in October.

    OUTLOOK AND IMPLICATIONS

    • StatCan’s flash estimate for November is for growth of +0.1%. Taking this into account, the fourth quarter is estimated to grow +0.5% at annual rates. Even if the economy stalls again, it’s unlikely that we’ll enter a technical recession in the fourth quarter. Although weaker thank the Bank of Canada’s Monetary Policy Report forecast of +0.8%, the risks of a slowing economy are higher with core inflation remaining higher than expected in the past few months.
    • One silver lining is that our Q4 Survey on Canadian Business Conditions shows that two-thirds of Canadian businesses are optimistic about the outlook for next year, though down from the last quarter.

    Summary Table

    Source: Statistics Canada.

    Charts

    Sources: Statistics Canada; Bank of Canada; Canadian Chamber of Commerce Business Data Lab.

    Commentaries /

    Q3 2023 GDP: A mixed bag—revisions add nuance to Canada’s third quarter economic contraction

    Q3 2023 GDP: A mixed bag—revisions add nuance to Canada’s third quarter economic contraction

    The Canadian economy contracted by 1.1% at annual rates in the third quarter. Consumer spending is stagnating and businesses are adjusting their operations amid this slow growth environment.

    Author's image
    Andrew DiCapua

    The Canadian economy contracted by 1.1% at annual rates in the third quarter. Consumer spending is stagnating and businesses are adjusting their operations amid this slow growth environment. The upward revisions to the second quarter partially tapered today’s negative growth. With decent flash estimate for October, we’re now on pace to end 2023 on better footing than previously anticipated. All together, we’re not out of the woods yet. Higher interest rates, in addition to a challenging global economic environment and sluggish consumers, will make for a precarious 2024.

    Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    Headlines

    • Canada’s real gross domestic product (GDP) fell by 1.1% annualized in the third quarter, well below market expectations (+0.2%). However, this follows an upwardly-revised second quarter growth of 1.4% (previously reported at -0.2%). The decline was driven by lower exports and slower inventory accumulation, although government spending and housing increased.
    • Monthly GDP by industry grew by a modest 0.1% in September led by manufacturing and construction.

    Movers and Shakers

    • Exports fell by 1.3%, mainly due to a significant drop (25%) in refined petroleum energy products. Imports edged down by 0.2%, with declines in various sectors such as clothing, footwear, and electronics.
    • Slower inventory accumulation in the third quarter, the smallest since 2021, had a downward impact on GDP growth. Manufacturers drew down inventories, notably in non-durable goods, while retail inventories increased.
    • Housing investment increased by 2%, marking the first positive growth since early 2022. The rise was driven by a 6.5% increase in new construction, particularly of apartments.
    • Household consumption remained unchanged, with durable goods increasing by 1.0% and services by 0.3%. Non-durable (-0.4%) and semi-durable (-2.8%) goods spending declined.
    • Business investment in non-residential structures declined 2% in the third quarter.
    • Compensation of employees rose 1.3%, driven by increased average earnings and employment, with notable growth in professional and personal services. Household savings also increased in the third quarter, with the saving rate reaching 5.1% as household disposable income growth (+1%, boosted by July’s federal grocery rebate) surpassed the rise in spending (+0.8%).

    OUTLOOK AND IMPLICATIONS

    • StatCan’s flash estimate for October of 0.2% suggests that the fourth quarter is off to a surprisingly healthy start. For now, it looks like the Canadian economy could skirt a technical recession in 2023. Fourth quarter GDP is now on pace to grow around 1% at annual rates, in line with the Bank of Canada’s latest forecast (+0.8%). We’re still not out of the woods, as economic risks rise, we can’t rule out zero or negative growth over the next few quarters, and a generally weak performance in Canada and abroad.
    • The Bank of Canada will view today’s data as further evidence that the economy is weak, which over time, should help bring inflation back to target. While it’s all but assure the BoC will continue holding rates for a while, it’s still too early for the Bank to talk about cutting rates.

    SUMMARY TABLE

    Sources: Statistics Canada; Bank of Canada

    GDP CHART

    Commentaries /

    August 2023 GDP: Engine light flashing, brace for a soft-ish recession.

    August 2023 GDP: Engine light flashing, brace for a soft-ish recession.

    Canada’s real gross domestic product (GDP) was essentially unchanged in August, below market expectations (+0.1%). This is the second month of an economy with no growth, following a summer of strikes, forest fires, and elevated costs.

    Author's image
    Andrew DiCapua

    The economy is clearly stagnating. With these numbers, you could make the argument that we’re in a technical recession, with the third and fourth quarters now expected to be essentially flat, and weaker than the Bank of Canada’s forecast released last week. 

    This economic weakness should put a lid on inflation pressures. But we’re dealing with a bit of a mirage, with GDP growth increasingly being fueled by a fast-growing population. That’s concealing a hard truth – that real GDP per person is falling, and poor productivity is expected going forward.

    Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    Headlines

    • Canada’s real gross domestic product (GDP) was essentially unchanged in August, below market expectations (+0.1%). This is the second month of an economy with no growth, following a summer of strikes, forest fires, and elevated costs.
    • Output grew in 8 of 20 sectors, led by gains in services, which were up 0.1% on the month, while goods dropped 0.2%.

    Movers and Shakers

    • Wholesale trade was the largest contributor to August GDP, growing 2.3% m/m. This was also the largest monthly gain since mid-2020 as agricultural supplies and recycle wholesalers led the way.
    • Mining, oil and gas extraction saw 1.2% m/m growth—the third consecutive monthly increase as the industry sees higher energy prices and restores output following severe forest fires this summer.
    • The manufacturing sector declined in August by 0.6% on the heels of weaker demand. Transportation equipment manufacturing was a bright spot, up in the past four months as semiconductor shortages continue to ease.
    • Although services led the monthly gains, accommodation and food services declined 1.8% m/m with food services demand slowing.
    • Transportation and warehousing grew by 0.8% m/m, led by air transportation as the seasonally high demand for travel fueled the sector. Water and rail transportation were both up considerably in August as they recovered from the port strike disruptions in July.
    • Retail trade contracted 0.7% m/m due to lower sales of motor vehicles and sales at car dealerships. This has been a trend since the beginning of the year as consumers shift spending away from durable goods.

    OUTLOOK AND IMPLICATIONS

    • StatCan’s flash estimate for September is yet another month of flat growth. The risks that the Canadian economy is in a technical recession have risen. The Q3 GDP is now estimated to grow -0.1% Q/Q at an annual rate. This is weaker than the Bank of Canada’s Monetary Policy Report forecast, which was released last week (0.8%). It’s likely we’ll see near zero growth over the next few quarters, below the Bank’s forecast and could help contain strong price pressures.
    • The stalling economy is consistent with what we’ve seen in our spending tracker, which has been flat over recent months. If the Canadian economy grows around 1% this year in real terms, while our population grows at around 3%, this means that real GDP per person is falling at 2%, which highlights to productivity challenges facing the country that could hinder sustained growth over the medium term.

    SUMMARY TABLES

    Source: Statistics Canada

    CHARTS

    Sources: Statistics Canada; Bank of Canada; Canadian Chamber of Commerce Business Data Lab
    Commentaries /

    July 2023 GDP: Losing momentum as the resilient economy hits summer challenges.

    July 2023 GDP: Losing momentum as the resilient economy hits summer challenges.

    Canada’s GDP was flat in July, in line with the advanced estimate, but slightly below market expectations. A challenging summer...

    Author's image
    Andrew DiCapua

    Canada’s GDP was flat in July, in line with the advanced estimate, but slightly below market expectations. A challenging summer tested Canada’s economy with the port strike and extensive forest fires. While some sectors quickly rebounded from those disruptions, it’s becoming clearer that the manufacturing sector is slowing as recession risks are rising. Overall growth is likely to stall in the third quarter, and our economy’s resilience will be tested in the months ahead.

    Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    Headlines

    • Canada’s real gross domestic product (GDP) was essentially unchanged in July, slightly below market expectations (+0.1%).
    • Output grew in 9 of 20 sectors, led by gains in services, which were up 0.1% in July, while goods dropped 0.3%).

    Movers and Shakers

    • Manufacturing posted its largest decline (-1.5% in July) since April 2021. It’s the second monthly contraction, on lower inventories and shipment blockages in the plastics and rubber products subsector (-8%).
    • As expected, the port strike in Western Canada in July had a negative impact on monthly GDP. The transportation and warehousing sector contracted 0.2% in July. Water transportation was most affected as shipments were unable to be processed at the port.
    • Forest fires had previously disrupted production in Canada’s energy sector, some of which experienced a bounce back in production in July. Mining, oil and gas rebounded (+1.8%), and accommodation and food services grew 2.3% as RV and camping activities picked up.

    OUTLOOK AND IMPLICATIONS

    • StatCan’s flash estimate for August sees a modest gain of +0.1%. This would partly improve on the flat-lined July, but the Canadian economy is stalling out, and will likely experience weak, flat or mildly negative growth over the next few quarters. Factoring in rapid population growth, this already feels like a recession for many households and businesses, even if it doesn’t yet meet the technical definition.

    SUMMARY TABLE

    CHARTS

    Commentaries /

    Q2 2023 GDP: A cause for pause as Canada’s economy unexpectedly stalls.

    Q2 2023 GDP: A cause for pause as Canada’s economy unexpectedly stalls.

    With this last piece of domestic data before the Bank of Canada’s policy announcement next week, the GDP report is positive news on a few fronts.

    Author's image
    Marwa Abdou

    With this last piece of domestic data before the Bank of Canada’s policy announcement next week, the GDP report is positive news on a few fronts. With a surprise contraction of 0.2% in real GDP in the second quarter, the economy has clearly slowed in response to monetary tightening. Given the recent inflation report, where July saw inflation exceed 3% after a period of steady cooling — drifting further from the BoC’s 2% target — this is the positive news many had hoped for and increases the likelihood of the Bank holding rates steady.

    Marwa Abdou, Senior Research Director, Canadian Chamber of Commerce.

    KEY TAKEAWAYS

    Headline

    • Canada’s real gross domestic product (GDP) growth significantly under-performed expectations with a surprise contraction of 0.2% in the second quarter. This result was much weaker the Bank of Canada’s forecast of a 1.5% gain, and the 1.2% consensus call.
    • Moreover, growth for Q1 was revised down to 2.6% from 3.1%.
    • There are now clear signs that higher interest rates are weighing on the economy, as consumers are finally starting to pinch their wallets — consistent with the earlier warnings from our Local Spending Tracker. The slowdown was attributable to household spending (0.1% down from 1.2% last quarter), continued declines in housing investment (-2.1%, for the fifth quarterly decrease!), smaller inventory accumulation, as well as slower export growth (+0.1% following 2.5% increase in Q1 2023). Increased business investment in engineering structures (+3.3%) and higher government spending on wages (+2.2%) were among the few components that aided the economy’s growth.

    Movers and Shakers

    • There was a very modest increase in spending on goods (+0.1%), but the real surprise was the weakness in household spending on services, which was flat in Q2, after a 1.1% increase in Q1.
    • The report also noted that “while aggregate household expenditures edged up in the second quarter, spending per capita fell 0.7%. In fact, per capita household spending declined in three of the last four quarters.” – again in line with the insights from our spending tracker.

    SENTIMENT, OUTLOOK & IMPLICATIONS

    Outlook Ahead/Recession Pulse

    • This represents a clear miss for the second quarter forecast by the consensus market call and the BoC. The only “good news” is that this release should finally cement the case for the Bank of Canada to hold on interest rates next week.
    • The advanced estimate for July suggests GDP was unchanged on the month. A variety of special, albeit temporary factors —on-going forest fires and a major port strike in July — will hurt activity in the third quarter. All in all, it’s entirely possible that Canada’s economy’s is already in a mild recession.

    SUMMARY TABLES

    Source: Statistics Canada; Bank of Canada.

    CHARTS

    Commentaries /

    May 2023 GDP: Canada’s economy set to slow —but still grow — in the second quarter

    May 2023 GDP: Canada’s economy set to slow —but still grow — in the second quarter

    Canada’s GDP rose 0.3% in May, matching market expectations. Output was helped by the easing of supply chain pressures, the end of a federal public servant strike and continued momentum in real estate, but forest fires disrupted Alberta’s oil and gas sector.

    Author's image
    Rewa

    Canada’s GDP rose 0.3% in May, matching market expectations. Output was helped by the easing of supply chain pressures, the end of a federal public servant strike and continued momentum in real estate, but forest fires disrupted Alberta’s oil and gas sector.

    Factoring in StatCan’s flash estimate of a 0.2% drop in June, Canadian real GDP is expected to grow at approximately 1% in the second quarter — down noticeably from over 3% in Q1, slightly weaker than what the Bank of Canada had expected. As a result, we’re becoming more confident that the Bank of Canada will hold its policy rate at 5% in September, marking the peak of this tightening cycle
    .

    Stephen Tapp, Chief Economist, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    Headline

    • Canada’s real gross domestic product (GDP) was up 0.3% in May, matching market expectations.
    • Output grew in 12 of 20 sectors, led by gains in services, which were up 0.5% on the month, while the goods sector dropped 0.3%.

    Movers and Shakers

    • As expected, the public sector rebounded in May, following a federal public servant strike of April 19 to May 3, which had temporarily shaved off about 0.1% from the headline GDP number in April.
    • In May, forest fires disrupted production in Canada’s energy sector (-2.1%). Alberta’s oil and gas in was hit hardest, dropping 6.6% and recording its largest monthly contraction in over three years. While this is a temporary disruption, we know that fires continued beyond May, and may act as a drag on output for a few more months.
    • The easing of supply chains pressures —with an improved supply of semiconductor chips — helped propel wholesale trade (2.9%) and manufacturing (1.6%).
    • Improvements in Canada’s real estate sector continue to support GDP, with gains for four consecutive months.

    OUTLOOK & IMPLICATIONS

    • StatCan’s flash estimate for June is -0.2%. This puts Canada’s real GDP on pace for growth of around 1% in the second quarter. This is slightly weaker than the BoC’s latest forecast, which sees growth of 1.5% for both Q2 and Q3, before slowing further for the following three quarters.
    • The market consensus is slightly weaker than the Bank’s outlook: with growth expected to stall (0%) — but no longer fall — by the fourth quarter, consistent with a much softer landing than was previously expected. All told, the Bank of Canada will likely hold their policy rate at 5%, marking the peak of the tightening cycle.

    SUMMARY TABLE

    GRAPHS

    Commentaries /

    April 2023 GDP: Canada’s Economy Stalls, May Advanced Estimate Shows Strength: How Long Will It Last?

    April 2023 GDP: Canada’s Economy Stalls, May Advanced Estimate Shows Strength: How Long Will It Last?

    KEY TAKEAWAYS Headline Movers and Shakers SENTIMENT, OUTLOOK & IMPLICATIONS Outlook Ahead / Recession Pulse SUMMARY TABLE CHARTS Like

    Author's image
    Business Data Lab

    Today’s report on Canada’s GDP was lackluster at best – as the economy held unchanged (0.0%) from its relatively unchanged March reading (0.1%). Perhaps the biggest proof that we’re not out of the woods yet, was May’s advance reading (0.4%). There was a lot riding on April’s data but while it is a more favourable turn of events in the context of the Bank of Canada’s upcoming announcement in July, the question is to what extent will it weigh on their decision to issue another consecutive hike.

    Marwa Abdou, Senior Research Director, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    Headline

    • Canada’s real gross domestic product (GDP) was unchanged (0.0%) in April. This outcome is slightly worse than Statistics Canada’s initial advanced estimate of 0.2%.
    • Output grew in 9 of 20 sectors where gains in the goods sector (0.1%) were offset by the lack of change in the services sector (0.0%).
    • Increases in mining, quarry and oil and gas extraction were the most notable (+1.2%).
    • In time for warmer weather (albeit not lately), construction also grew (0.4%) by way of engineering and non-residential activity.

    Movers and Shakers

    • Also broadly anticipated was the growth in real estate, rental, and leasing sector (0.5%). This marked the second quarter of consecutive growth and the sector’s largest uptick since December 2020!
    • The public sector recorded the largest decline since January 2022 (-1.0%). The federal public servant strike (from April 19-May 3) temporarily shaved off about 0.1% from the headline GDP number in April but will provide a similar rebound in May.
    • The manufacturing sector also reported a measurable decline (0.6%) – by way of dips in both durable and non-durable goods.
    • The decline in wholesale trade (-1.4%) weighed mostly in the services sector softness.

    SENTIMENT, OUTLOOK & IMPLICATIONS

    Outlook Ahead / Recession Pulse

    • The report showed some cooling in demand, but it will have to be sustained. In its April report, the Bank of Canada forecasted GDP would increase 1% in the second quarter. May’s strong flash estimate (0.4%!) is ahead of market consensus (0.8%), and BoC expectations (almost 1.5% annualized).
    • With inflation clocking in at 3.4% in May and still hovering above the Bank’s target and the labor market remaining relatively tight, there are still a lot of factors at play for the upcoming July announcement. Taken in sum, it remains uncertain whether this was enough to heed another.

    SUMMARY TABLE

    CHARTS

    Commentaries /

    May 2023 GDP: Better than expected GDP growth increases odds of additional rate hikes

    May 2023 GDP: Better than expected GDP growth increases odds of additional rate hikes

    After a surprise uptick in April’s inflation, this much anticipated first quarter GDP reading proves the economy still has some steam left in its engine.

    Author's image
    Rewa

    After a surprise uptick in April’s inflation, this much anticipated first quarter GDP reading proves the economy still has some steam left in its engine. As we anxiously await the Bank of Canada’s upcoming policy rate decision next week, the possibility of at least another hike becomes more real. While forecasters project a slight slowdown for the remainder of the year, it may take longer than anticipated for the combined effects of monetary policy tightening and rising interest rates to sufficiently dampen excessive demand and restore balance to the economy, albeit at a slower pace than desired.

    Marwa Abdou, Senior Research Director, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    Headline

    • Canada’s real gross domestic product (GDP) growth in the first quarter of 2023 met the Bank of Canada’s expectations, reaching an annualized rate of 3.1%.
    • The headline figure surpassed market expectations and the federal agency’s forecast of 2.5%, driven by a significant increase in final domestic demand (+0.7%). This is a notable improvement compared to the zero growth reported in Q4 2022. Additionally, StatsCan’s advanced estimate for April 2023 suggests a 0.2% growth, indicating a stronger start to Q2 than anticipated.
    • The overheated economy proves it still has skin left in the game, with household spending rose for both goods (+1.5%) and services (+1.3%) after two lackluster quarters. However, the savings rate decreased from 5.8% in Q4 2022 to 2.9%.

    Movers and Shakers

    • Spending on durable goods, such as new trucks and sport utility vehicles, saw a significant increase (+3.3%), while semi-durables, like garments, experienced growth of 4.3%. Non-durables, on the other hand, saw a slight decline (-0.2%). In the services sector, growth was led by food and non-alcoholic beverage services, alcoholic beverage services (+4.4%), and travel expenditures by Canadians abroad (+6.8%).
    • Favourable international trade contributed to overall growth, with exports of goods and services increasing by 2.4%, led by cars and light trucks. Imports also saw a modest uptick (+0.2%).
    • There is evidence that interest rate adjustments are having an impact, albeit gradually. Residential investment experienced a significant decline for the third consecutive quarter (-14.6%).
    • Business investment also weakened (-2.5%) for another quarter, partly due to lower inventories, which experienced the smallest change since Q4 2021, putting some downward pressure on GDP growth.

    SENTIMENT, OUTLOOK & IMPLICATIONS

    Outlook Ahead/ Recession Pulse

    • Despite the Bank of Canada’s forecast of a 2.3% GDP increase this quarter, unexpected inflationary pressures in April and a persistently tight labor market with near-record-low unemployment indicate that a few key factors remain unchanged: it will require time, and this stronger-than-expected economy is not yet free from the potential of another interest rate hike.

    SUMMARY TABLE

    CHARTS

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