Canadian GDP Struggles, Will Get Worse Despite Population Boom: RBC

Despite elevated inflation, Canada’s economy is sputtering. Statistics Canada (Stat Can) data shows gross domestic product (GDP) was unchanged in October 2023. Output has now failed to advance for nearly half a year, despite the record population boom that was expected to drive demand. RBC warns the country is most likely to print a sixth quarterly decline of per capita GDP, even if an anticipated minor rise in output is achieved. 

Canadian GDP Fails To Advance For A Fifth Month  

Canadian GDP growth wasn’t even close to expectations. Stat Can’s preliminary measurement had expected 0.2% growth in October, but final numbers came in unchanged. GDP hasn’t budged over the past three months, and failed to advance over the last five months of data (two months prior to stalling were negative). 

November Expected To Break The Losing Streak But It Won’t Be Enough

The agency expects the losing streak to end next month. November’s preliminary estimate is forecast to show 0.1% growth—not exactly a screaming advancement, but something.

However, giving weight to preliminary data may not be particularly wise in this environment. In addition to the massive miss in the last data, the precision has been off for much of the year. Not necessarily an issue of being over optimistic either, since a huge quarterly revision recently prevented a “technical” recession of two declining quarters of data.  

Canada’s Stalling GDP Is Worse Than It Looks, No Per Capita Growth For A Sixth Quarter

Canada’s largest bank warns unchanged GDP may seem harmless, but things are much worse than they look. RBC sees it largely irrelevant if November shows a small gain, or Q4 reflects zero to low growth when finalized. They’re confident the data will fail to reflect growth in line with the surge in population. 

“… [GDP data] will almost certainly post a sixth consecutive quarterly decline given still surging population growth,” Nathan Janzen, assistant chief economist at RBC. 

Flat GDP growth and a population boom don’t typically accompany each other. As more economic units (workers) are added to an economy, aggregate demand is expected to rise. A drop in per capita GDP growth indicates stagnating incomes or quality of life.  

RBC believes a sixth quarter of per capita GDP declining is likely, and it will temper Bank of Canada (BoC) expectations. 

“The BoC wants to be cautious about declaring victory over inflation too early, but softening economic growth and labor markets  should boost confidence that price growth will continue to slow towards the central bank’s target range,” explains Janzen. 

“Additional interest rate hikes are increasingly unlikely and we expect the BoC to pivot to interest rate cuts in Q2 of next year.”