Canada’s economy is still cranking out growth, but the details aren’t encouraging. Statistics Canada (Stat Can) data shows higher-than-expected gross domestic product (GDP) growth in November. It was positive news, but economists remain cautious and warn that consumers are weakening. GDP growth couldn’t even match the robust population growth, reinforcing slowdown concerns.
Canada’s Economy Is Growing, But Slower Than Normal
Canada’s economy showed modest growth of 0.1% in November, the same rate as the previous month. Despite a drop in goods producing sectors (-0.1%), service sectors (+0.2%) managed to drive the numbers higher. Growth is better than a contraction, but it’s been a sharp slowdown over the past year.
Canadian Gross Domestic Product Monthly Growth
The growth rate for Canada’s monthly gross domestic product (GDP).
Source: Statistics Canada; Better Dwelling.
Stat Can’s preliminary data for December GDP shows no growth in the month. Annualized quarterly growth would fall to 1.6% in Q4, slightly higher than the Bank of Canada (BoC) forecast. It’s running warmer than expected, but it falls behind typical growth.
“We would note that 1.6% growth is a bit below the economy’s 10-year trend (1.8%), and also below last year’s population growth—so it’s sluggish,” said Douglas Porter, chief economist at BMO.
Adding, “Digging into the details, the November results reveal a clear split between some sectors that are still recovering from two years of restrictions, and other sectors that are sagging under the barrage of rate hikes.”
Air Travel Recovery, Growing Public Sector Behind Growth
Canada’s economy was driven by a recovery in travel and government spending. Air Transport (+4.6%) showed a sharp increase in November, and has climbed 101% over the past year. “… it’s still almost 30% below pre-pandemic levels,” warns Porter.
November’s largest contributor to growth was the Public Sector (+0.3%). It represented 0.054 points of the month’s move, equivalent to over half the growth. Public Administration (+0.5%) was behind most of this sector’s boost, primarily the Federal government, noted Stat Can.
Canadian GDP Growth By Sector
Canada’s GDP change for November 2022, and the major industrial sector contributions in percentage points.
Source: Statistics Canada; Better Dwelling.
Canada’s Housing Slowdown & Weak Consumers Are Dragging GDP
Consumers and interest-rate sensitive industries were the largest weights for the month. Construction represented the largest downward pressure, contracting 0.7% in November. This trimmed 0.049 points from its contribution to GDP growth for the month. A decline in housing construction was the “main driver,” according to the agency.
Consumer spending also shows cracks, with the Retail Sector (-0.6%) contracting. It was attributed to Food & Beverage Stores (-1.8%), Building Materials (-2.9%), and General Merchandise (-1.6%). The sector shaved 0.032 points from November GDP growth.
Top Economists Still See The Economy Slowing In Coming Months
You’re not the only one feeling mixed after diving into the details—Bay Street isn’t sold either. GDP growth was higher-than-expected but still reveals a slowdown. Households are still adjusting to higher inflation and interest rates. Though they’re handling it fairly well, it’s still expected to curb their buying power.
“The BoC has announced plans to pause interest rate hikes at current levels, but the 425 basis points of increases to the overnight rate over the last year has yet to fully pass through household purchasing power,” explains RBC assistant chief economist Nathan Janzen.
Janzen sees consumers continuing to lose momentum as debt servicing costs rise. “That means early signs of easing inflation pressures are likely to persist, but also that GDP growth will likely dip into negative territory over the first half of this year,” he explains.
Porter appears to be on the same page, warning not to read too much into the growth. “While not exactly inspiring or surprising, the raft of GDP news for late 2022 suggests that the economy is still gradually churning forward,” he says.
Adding, “…but the overriding message is that the economy is just managing to keep its head above water, which squarely fits with the BoC’s view.”
Is it possible that *gasp* real estate was toxic and the Fed tried to hide poor growth by trying to find as many rent payers as possible?
Real estate wouldn’t do that to us. It loves us and we love it.
Canada isn’t even hiding that it has no growth opportunities anymore. The anti-oil rhetoric continues, but they’ve had to fall back on it and selling passports to help bolster growth. The minute Canada stops reporting growth, we get an outflow of high skilled people.
Tough outlook. Not a lot of growth opportunity, and government prefers low rates so large companies can out leverage smaller opportunities.
I don’t have a problem with government employees but the issue I think most people are going to fail to grasp is that we aren’t seeing a boom, we’re hiding a recession by creating administration jobs in government.
Relying on government job creation should be something that happens during a recession, not ahead of when things are supposedly great.
It’s going to be spun into an attack on government employees for the next election if anyone mentions this outside of finance. Never underestimate a politician’s to play the public against each other to avoid any honest discussion of their actions.
If one looks at monthly GDP per capita using the LFS estimates of the active population as the population in the denominator, GDP per capita was $65,010 in September 2022 and has dropped steadily in October, November and December. This is partly due to our Liberal government’s social engineering immigration policies, which have been goosing the rate of population growth. Although 0.0% growth is the preliminary GDP growth estimate by StatCan for December, the economy would actually have to grow by 1.27% on an annualized basis in December just to keep GDP per capita from falling. The next couple of quarters aren’t likely to be any better and could be worse. So Canadian households are becoming poorer, not richer. Doug Porter sees this and says the economy is still churning forward. Maybe so, but the Canadian people are slipping back.