Canada’s GDP Slowed Despite A Population Boom. That’s Bad News

Not even Canada’s record population growth can prevent its economy from slowing. Statistics Canada (Stat Can) reported the country’s real gross domestic product (GDP) growth slowed in February. The final numbers showed just a third of the growth rate the agency anticipated in their preliminary estimate. Not even the demand boost from a record population increase has been able to prevent this slowdown. 

Canada’s Economy Is Slowing More Rapidly Than Forecast

Canada’s economy is slowing down much faster than expected. Real GDP grew 0.1% in February, a big miss when compared to the 0.3% preliminary estimate from Stat Can. After a surprising 0.6% climb in January, it seemed like Canada was faring better than most had anticipated. That’s no longer the case. 

Stat Can’s preliminary estimate for March shows expectations are further eroding. The agency’s preliminary real GDP estimate is a 0.1% contraction in March. Its primary drag is slowing consumer spending, which was partially offset by more public sector expansion. 

“The surge in GDP in January increasingly looks to have been a head-fake, with activity softening over February and March,” said Nathan Janzen, assistant chief economist at RBC.  

Adding, “and consumer spending headwinds continue to build as higher interest rates flow gradually through to household borrowing costs with a lag.”  

Canada’s Economy Is Slowing Despite Its Population Boom

The growth, or lack of, is shocking when you factor in the record population boom. Canada’s population grew by an estimated 273k people in Q1 2023, and 362k people in the prior quarter. Since real GDP is taken at the aggregate, adding over half a million people within six months should have provided a boost. That wasn’t the case, meaning things are much worse on the ground. 

Real GDP is measured in aggregate, meaning more people should increase output. After all, everyone consumes and most of Canada’s growth has been prime age workers. Despite low employment and a surge in demand, the additional people aren’t resulting in many “productive” economic gains. The growth is hiding the cracks appearing in Canada’s economy. 

Most of the country’s remaining growth is basic services to accommodate the population. Stat Can noted the expansion of the public sector, including education, healthcare, and social assistance, was the biggest contributor to real GDP growth in February. It increased 0.2% in February, up for a 13th consecutive month. 

Construction was another one of the top contributors, rising 0.3% in February. That’s 3x faster than the rate of the general economy, and the fifth consecutive month it’s expanded. Stat Can noted that construction was driven largely by residential building. We often joke around here that Canada’s economy will just be warehousing people, but it’s getting close to that point. 

Canada Should Expect A Recession, But No Rate Cuts… Yet

Stat Can is forecasting Q1 numbers will show a 0.6% increase compared to the prior month. It seems a little lofty, but in the event it does—the good news is expected to pass quickly. 

“Economic growth continued in February, albeit barely, but we think the Q1 rebound in GDP will prove fleeting and expect a recession will get underway in Q2 that will last through the remainder of 2023,” said Tony Stillo, Director of Canada Economics at Oxford Economics.  

Stillo says the Bank of Canada (BoC) made the right call with a rate pause. The economic slowdown is in line with the central bank’s latest forecast. Elevated inflation, a tight labor market, and high wage growth are reasons he doubts we’ll see a rate cut anytime soon. 

RBC was in agreement this morning. “With GDP growth tracking weak momentum into Q2, the BoC isn’t expected to hike interest rates again. Although inflation is also still too firm to justify a quick shift to cuts, even with the economy showing signs of softening,” said Janzen.

9 Comments

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  • Trader Jim 1 year ago

    Basically trying to hide a contracting economy by averaging up like a degenerate gambler buying more stock at a lower price then bragging about the total value of their holdings.

    • Kevin Logan 1 year ago

      – tell people abroad they can make money & have a high quality of life
      – have them move here and spend all their money on rent
      – they don’t have the ability for upward mobility, so they work the worst jobs and we poach their cheap labor

      Why does this sound so familiar?

  • RW 1 year ago

    We build houses, and sell weed and oil. Somehow people think the people in charge are really good at building an economy, since the average idiot isn’t smart enough to own more than a house.

  • PR 1 year ago

    Population growth might need a closer look. A huge proportion of new PR recipients are already temporary residents working and spending money here for some time. It’s just a change of their legal status not freshly added workforce and consumers.
    At the same time overseas PR recipients might only show up in Canada in person after some time from receiving their PR cards causing a lag effect in any expected new consumer spending from that cohort.

  • Bob Vila 1 year ago

    Here’s paying the upper limit on your variable rate mortgage while inflation saps 20 percent of your purchasing power in only 2 years. You got the stagflation recession without the housing bust. I think this will be more harmful than allowing housing to correct appropriately to the rate increases. But I’m sure the private banks know what they’re doing managing the economy. Although I think the government is supposed to provide some oversight there.

  • Average Man 1 year ago

    I have, as a nobody who knows nothing but is a keen observer of people, said that the Canadian housing bubble will never “pop.” Instead, it will expand and expand until it starts putting pressure on everything around it, and only once all that has been crushed will housing itself correct. It will be the last thing to go, but when it does, there’s going to be a lot of problems. This is probably still 2-5 years away.

    I don’t think we’re going to go full Venezuela or anything that dramatic, but picture Ireland/Spain/Greece in the mid-’00s. We will go from immigration to emigration FRIGHTENINGLY fast. It will take 15-20 years to get back on track.

  • Biff Boffo 1 year ago

    So the new ponzis aren’t acting like ponzis.

    Little did they know Canada was brutally expensive.

  • Jimbo Manfried 1 year ago

    I distinctly remember looking up statscan population projection for 2020 3 years and it was at 40 million. A year later we have the census and then a year after that we have the census figure of 37 million for 2021.

    If Canada’s population was already 40 million at 2020 then the figure at the beginning of the year 2023 is 42 million and the projected increase this year is about 1.2 million. So much people, so few jobs.

  • Andrew Baldwin 1 year ago

    It’s about time somebody pointed out that immigration at social-engineering levels with anemic GDP growth is not a winning combination. February saw an increase in real GDP but a 0.13% drop in real GDP per capita (using the LFS active population as the population measure). If March’s preliminary estimate of a 0.1% GDP decline is accurate, then there was a 0.35% decline in real GDP per capita in that month. April, because of the government strikes, could see a similar decline in real GDP per capita to March. In April we may well have had real GDP per capita more than 1% below the real GDP per capita in February 2020, the peak month before we went into recession. It is really a pathetic performance, and it seems that blockbuster immigration growth is part of the problem.

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