Canadian economy grew slightly in November, expected to slow further

OTTAWA – Canada’s economy is poised to continue its slowdown this year as the economy loses momentum at the end of 2022, with high interest rates weighing on spending.

Statistics Canada’s preliminary estimate of real GDP for December shows the economy neither growing nor contracting, suggesting the economy grew at an annualized rate of 1.6% in the fourth quarter of last year. .

By comparison, the economy grew at an annualized rate of 2.9% in the third quarter of 2022.

RBC Assistant Chief Economist Nathan Janzen said the latest GDP report adds further evidence that the economy is indeed losing momentum.

And that trend is expected to continue, he said.

“The key to looking ahead is that many of the effects of previous Bank of Canada rate hikes have yet to fully permeate the purchasing power of households.”

Economists say it usually takes 12 to 18 months for the full impact of a rate hike to be fully reflected in the economy.

Since March, the Bank of Canada has raised key interest rates eight times in a row. The central bank said last week that it had conditionally suspended further rate hikes to the key rate, which currently stands at 4.5%, leaving the door open to further rate hikes if inflation fails to come down.

The economy, which had bounced back from the COVID-19 pandemic in the first half of 2022, grew 0.1% in November, federal agencies said on Tuesday.

According to Statistics Canada, the economy grew 3.8% last year.

However, the pace of growth slowed in the second half, coinciding with aggressive rate hikes by the Bank of Canada.

Real domestic production growth in November was led by the public sector, transportation and warehousing, and finance and insurance.

The lifting of COVID-19 travel restrictions is boosting growth in transportation and warehousing, according to a Statistics Canada report.

On the other hand, the construction, retail, lodging, and restaurant industries shrunk.

“We’re starting to see signs of a crack in the backdrop of consumer spending,” Janzen said, noting that declines in retail, accommodation and dining services showed consumers were receding. .

The housing market was the first to feel the effects of rising interest rates, leading to a slowdown in housing-related sectors.

The slowdown is expected to extend to other sectors of the economy, impacting employment levels, as businesses facing declining sales adjust their hiring plans.

Canada’s annual inflation rate has slowed since the summer, reaching 6.3% in December. The central bank wants inflation to return to its 2% target, which it expects to happen in 2024.

Looking ahead, many economists expect a modest recession in 2023. However, the economy is expected to recover later this year.

“We expect GDP growth to continue to slow and enter negative territory in the first half of this year,” Janzen said.

This report by the Canadian Press was first published on January 31, 2023.