Home Business Canada’s GDP Grew, But Consumers Aren’t Spending & We’re Heading For Recession

Canada’s GDP Grew, But Consumers Aren’t Spending & We’re Heading For Recession

by News Desk
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Canada’s economy is growing, but don’t let the headline data fool you. The country is still headed for recession. Statistics Canada (Stat Can) Gross Domestic Product (GDP) data showed strong growth in Q3 2022. But swoop past the headline numbers and you’ll see things aren’t as big as they seem. Household spending rarely declined and business spending was mixed. The economy has enough power to raise interest rates to keep inflation in check, but not enough to avoid a recession.

Canada’s GDP growth beats expectations

Canada’s GDP showed strong headline growth. This looks great at first glance. Monthly growth in September was 0.1% for him, in line with expectations. Annual growth in the third quarter reached 2.9%, nearly double expectations. Energy is a big driver of trends and a big part of growth. The rest of the economy is less active, indicating the country is headed for recession.

Canadian household spending is experiencing an unusual contraction

A deeper dive into Canada’s GDP data reveals even more worrying household outlooks. Household spending shrank by 1% in the third quarter, a rarity in Canada. BMO says this hasn’t happened since 2009, he said, outside of a pandemic. Declining spending on goods (-6.8%) accounted for most of the decline. Even a strong increase in services (+3.8%) could not make up for the decline in spending on goods.

A weakening consumer also means a weakening of housing. Or has expensive housing eaten away at consumers? Moreover… residential investment fell on top of its 15.4% decline in the third quarter and its 31.5% decline in the second quarter. Don’t expect it to stop there. “…[residential investment] Benjamin Reitzes, Managing Director of Macro Strategy at BMO, warns:

Though he says things aren’t all dark. In a letter to investors, Reitzes said business spending was mixed in the quarter, with non-residential construction up nearly 12% and remaining strong, while machinery and equipment spending fell 7.6%. I did,” he explains.

Canada’s largest bank also told investors that weak data reinforces calls for a recession. “It’s consistent with our own forecast of contraction,” explained Nathan Janzen, assistant chief economist at the bank.

Canada’s economy still has plenty of power for a big rate hike

Despite lukewarm data, experts do not expect rate hikes from the Bank of Canada to slow in the coming months. Stat Can noted that GDP has been revised upwards significantly retroactively to his 2019. Canadian production did not contract as much and grew more than expected. Frankly, Canada’s economy is much bigger than previously believed and didn’t need as much stimulus as it was given.

The Bank of Canada is likely to see this as reinforcing their belief in excess demand. “Nothing will stop the Bank of Canada from raising interest rates by 50bps in its December policy announcement,” Reitzes said.

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