A slowdown is well underway

By Fergal McAlinden

30 Nov 2023

The Canadian economy contracted in the third quarter by 1.1% compared with the previous year, according to the national statistics agency.

Statistics Canada said on Thursday that the country’s gross domestic product (GDP) also fell on a quarterly basis, inching downwards by 0.3%, although it revised its April-to-June figures from a contraction to growth of 1.4%.

That revision means the economy avoids two consecutive quarters of contraction, the benchmark used by many analysts to define a recession. Still, the latest figures show that an economic slowdown is well underway in Canada, strengthening the likelihood that the central bank will leave interest rates where they are in next week’s announcement.

StatCan said international exports and businesses’ inventory accumulation fell in Q3, with that decline offset in part by higher government spending and investment in housing.

The Bank of Canada embarked on an aggressive series of rate hikes in March 2022, spiking its benchmark rate by 475 basis points through 10 increases that took that trendsetting rate to a 22-year high of 5.0%.

Inflation has continued to progress toward the central bank’s 2% target amid those hikes, with the latest indications of a sluggish economy adding credence to Bank governor Tiff Macklem’s recent suggestion that rates may already be high enough to reach that level.

Royal Bank of Canada (RBC) assistant chief economist Nathan Janzen said in a note after Thursday’s results that Canada’s macroeconomic backdrop “continues to look soft,” especially with high levels of population growth boosting the economy’s production capacity and the number of consumers.

With job vacancies also having fallen by 6% in September – and 30% on a year-over-year basis – Janzen said a Bank of Canada hold in December, followed by rate cuts in 2024, was in the cards.