Ottawa –
Canada’s economy was at a standstill at the end of 2022, as the latest GDP report shows, but underneath the disappointing data lies resilient consumer spending that is keeping the economy going.
on tuesday, Real Gross Domestic Product, according to Statistics Canada was unchanged in the fourth quarter of 2022 after five consecutive quarters of growth.
The economy contracted by 0.1% in December, the report said, pointing to a much tougher economy than forecasters had expected as rising interest rates hit the economy even more pronouncedly.
Preliminary estimates from Statistics Canada projected growth of 1.6% on an annualized basis for the quarter.
But Statistics Canada expects the economy to rebound in January, with real GDP growing by 0.3%.
There were also bright spots for Canadians in the fourth quarter. Household spending rebounded by 0.5% in the fourth quarter after declining by 0.1% in the third quarter.
James Orlando, TD’s director of economics, said consumers, the “true engine of Canada’s economy,” are still doing relatively well.
“Overall, the headline print looks very bad. But when we pull back the lens, some of the underlying fundamentals are still looking very good for the Canadian economy,” Orlando said. Stated.
The slowdown in the fourth quarter was largely due to companies accumulating less inventory than in the last two quarters.
Orlando said inventories hit record levels earlier this year as a result of supply chain easing. However, that accumulation was not expected to continue.
Real business investment fell for the third consecutive quarter as inventories fell and housing investment weakened due to rising interest rates in 2022.
Growth stalled in the quarter, but disposable income increased faster than nominal spending for Canadians, allowing them to save more money.
The household savings rate was 6% in the fourth quarter, up from 5% in the previous quarter, according to the federal agency.
The report attributed this improvement in part to government benefits, including a one-off addition to the GST tax credit and a 10% increase in Old Age Security payments for those aged 75 and over. thinking about.
The liberal government introduced these measures aimed at low-income Canadians to help them cope with rising inflation.
“All of this puts more money in Canadians’ pockets and … Canadians spend more money,” Orlando said.
Looking ahead, Orlando said recent economic data has been “much better than expected.”
The economy added 150,000 jobs last month, according to the latest labor force survey. Retail sales also increased for him in January.
These numbers confirm expectations of a rebound in economic growth in January.
However, most economists expect a recession in the first half of this year is inevitable as the Canadian economy will hold back spending due to higher interest rates.
Since March, the Bank of Canada has raised its key interest rate from near zero to 4.5%. This is his highest since 2007.
In January, the central bank announced a conditional moratorium on rate hikes to assess how the economy is responding to higher interest rates.
The Bank of Canada has made it clear it is ready to raise interest rates again if the economy continues to overheat or inflation proves stable.
But Orlando said he was likely content with the decision to sit on the sidelines given the soft GDP report.
The Bank of Canada is expected to make its next interest rate decision on March 8th.
The central bank says a slowdown is needed to bring inflation back to its 2% target.
After peaking at 8.1% in the summer, Canada’s annual inflation rate slowed to 5.9% in January.
The Bank of Canada expects inflation to slow to 3% by mid-2023 and return to its 2% target next year.
He hopes that inflation will return to target without a sharp downturn in the economy. At the same time, central banks have stressed that a return to normal inflation is the main focus, potentially at the expense of a deeper economic contraction.
This report by the Canadian Press was first published on February 28, 2023.
