The Canadian economy ended 2022 with a deeper slowdown than anticipated amid higher interest rates but appears to have gained momentum at the start of the new year.
On Tuesday, Statistics Canada said real gross domestic product was unchanged in the fourth quarter of 2022 after five consecutive quarters of growth.
The report shows a much grimmer economy than forecasters were expecting as higher interest rates took a more noticeable toll on the economy.
Statistics Canada’s preliminary estimate had predicted 1.6 per cent annualized growth for the quarter.
The economic slowdown in the last three months of the year came despite higher household and government spending as well as a stronger trade position for Canada.
After two quarters of record inventories, businesses accumulated less inventories in the fourth quarter, weighing significantly on real GDP growth.
Real business investment also declined for a third consecutive quarter as higher interest rates weakened housing investment in 2022.
In December, the economy contracted by 0.1 per cent as goods-producing industries declined.
But the report includes some silver linings for Canadians. After declining by 0.1 per cent in the third quarter, household spending bounced back by 0.5 per cent in the fourth quarter. Household disposable incomes also rose faster than their nominal spending, allowing them to save more money.
The federal agency says the household savings rate was six per cent in the fourth quarter, up from five per cent the previous quarter.
The report partly attributes this improvement in household finances to government benefits, including the one-time top-up to the GST tax credit and a 10 per cent increase in Old Age Security payments for seniors aged 75 years and over.
The Liberal government introduced these measures targeted at lower-income Canadians to help them cope with higher inflation.
A preliminary estimate from Statistics Canada suggests the economy bounced back in January, posting 0.3 per cent growth in real GDP.
Last month, the economy added 150,000 jobs, suggesting there’s still steam on the hiring front.
But most economists expect the Canadian economy won’t be able to avoid a recession in the first half of the year as higher interest rates dampen spending.
Since March, the Bank of Canada has raised its key interest rates from near-zero to 4.5 per cent, the highest it’s been since 2007.
The central bank contends a slowdown is necessary to bring inflation back down to its two per cent target.
After peaking at 8.1 per cent in the summer, Canada’s annual inflation rate slowed to 5.9 per cent in January.
The Bank of Canada is forecasting inflation will slow to three per cent by mid-2023 and fall back to the two per cent target next year.
It’s hoping inflation can come back down to target without a sharp economic downturn. At the same time, the central bank has stressed that returning to normal price growth is its primary focus, one that could come at the expense of a more severe economic contraction.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
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