Canadian economy posted no growth in fourth quarter, but consumer spending is holding on

OTTAWA –

The Canadian economic system was treading water on the finish of 2022, the most recent GDP report exhibits, however beneath the disappointing information is resilient client spending maintaining the economic system afloat.

On Tuesday, Statistics Canada mentioned actual gross home product was unchanged within the fourth quarter of 2022 after 5 consecutive quarters of progress.

The report, which mentioned the economic system contracted by 0.1 per cent in December, confirmed a a lot grimmer economic system than forecasters have been anticipating as greater rates of interest took a extra noticeable toll on the economic system.

Statistics Canada’s preliminary estimate had predicted 1.6 per cent annualized progress for the quarter.

But Statistics Canada expects the economic system bounced again in January, posting 0.3 per cent progress in actual GDP.

The fourth quarter additionally included some silver linings for Canadians. After declining by 0.1 per cent within the third quarter, family spending bounced again by 0.5 per cent within the fourth quarter.

TD’s director of economics James Orlando mentioned the buyer, which is “the real engine of the Canadian economy,” remains to be faring comparatively properly.

“Overall, the headline print looks really bad. But when you pull back the lens … Some of the underlying fundamentals are still coming in quite good for the Canadian economy,” Orlando mentioned.

The fourth quarter slowdown was largely pushed by companies accumulating much less stock than within the earlier two quarters.

Orlando mentioned inventories reached document ranges earlier within the yr because of easing provide chains. But that accumulation wasn’t anticipated to final.

In addition to decrease inventories, actual business funding declined for a 3rd consecutive quarter as greater rates of interest weakened housing funding in 2022.

Although progress stalled for the quarter, Canadians noticed their disposable incomes rise sooner than their nominal spending, permitting them to avoid wasting more cash.

The federal company mentioned the family financial savings price was six per cent within the fourth quarter, up from 5 per cent the earlier quarter.

The report partly attributes this enchancment in family funds to authorities advantages, together with the one-time top-up to the GST tax credit score and a ten per cent improve in Old Age Security funds for seniors aged 75 years and over.

The Liberal authorities launched these measures focused at lower-income Canadians to assist them address greater inflation.

“All of this together means more money in the pockets of Canadians and … that Canadians are going to spend more,” Orlando mentioned.

Looking forward, Orlando mentioned latest financial information has been coming in “much better than expected.”

The newest labour power survey confirmed the economic system added 150,000 jobs final month, suggesting there’s nonetheless steam on the hiring entrance. Retail gross sales have been additionally up in January.

These figures assist forecasts for a rebound for financial progress in January.

But most economists anticipate the Canadian economic system will not be capable of keep away from a recession within the first half of the yr as greater rates of interest dampen spending.

Since March, the Bank of Canada has raised its key rates of interest from near-zero to 4.5 per cent, the very best it has been since 2007.

The central financial institution introduced in January it could take a conditional pause on mountain climbing charges to evaluate how the economic system is responding to greater rates of interest.

If the economic system continued to run sizzling or inflation proved sticky, the Bank of Canada made it clear it could be prepared to leap again in and lift charges additional.

But Orlando mentioned it is seemingly content material with its choice to sit down on the sidelines, given the softer GDP report.

The Bank of Canada is ready to make its subsequent rate of interest choice on March 8.

The central financial institution contends a slowdown is important to deliver inflation again all the way down to its two per cent goal.

After peaking at 8.1 per cent in the summertime, Canada’s annual inflation price slowed to five.9 per cent in January.

The Bank of Canada is forecasting inflation will gradual to a few per cent by mid-2023 and fall again to the 2 per cent goal subsequent yr.

It’s hoping inflation can come again down to focus on with no sharp financial downturn. At the identical time, the central financial institution has burdened that returning to regular value progress is its main focus, one that would come on the expense of a extra extreme financial contraction.

This report by The Canadian Press was first printed Feb. 28, 2023.