Shoppers at Toronto’s Eaton Centre are seen in this file photo.Fred Lum/the Globe and Mail
The Canadian economy tumbled over the summer as export shipments waned and consumer spending flattened, signs of a continuing malaise as the country grapples with higher interest rates – and a sharp contrast with robust growth in the United States.
Real gross domestic product, which is adjusted for inflation, shrank at an annualized pace of 1.1 per cent in the third quarter, according to figures published by Statistics Canada on Thursday. The results were considerably weaker than the Bank of Canada’s estimate of 0.8-per-cent growth and Bay Street’s expectations of a slim 0.1-per-cent increase.
Canada’s economic performance has increasingly diverged from that of the U.S., which posted a 5.2-per-cent expansion in the third quarter.
Canada did, however, avoid two consecutive quarters of GDP decline – what some economists refer to as a “technical recession.” Statscan made sharp upward revisions to its second-quarter figures, which are now showing annualized growth of 1.4 per cent, where previously they showed a slight decline.
“I think this is a very challenging, very volatile time in the global economy,” Finance Minister Chrystia Freeland told reporters at an event in Vancouver on Thursday. “But what I am very confident of is there is no country in the world that is better positioned to achieve that soft landing than Canada.”
Conservative Leader Pierre Poilievre questioned why Canada’s economy is shrinking at a time when the U.S. economy is posting strong growth numbers.
“This is the result of high taxes, big deficits and crippling red tape,” he said during Question Period. “The economy is now smaller than it was on a per capita basis five years ago.”
Thursday’s report showed how higher borrowing costs are weighing on economic activity, although the summer months were also affected by wildfires and more striking workers than usual.
In a preliminary estimate, Statscan said that GDP rose 0.2 per cent in October, and many analysts project growth will swing back into positive territory in the fourth quarter.
Still, the economic situation looks more grim when soaring population growth is accounted for. GDP per capita – a popular measure of living standards – has fallen for five consecutive quarters.
“There are plenty of unexpected cross currents in today’s release, but the big picture is that the Canadian economy is struggling to grow, yet managing to just keep its head above recession waters,” Bank of Montreal chief economist Doug Porter said in a research note.
The Statscan report did not have a material impact on expectations for the Bank of Canada, which has pushed interest rates into restrictive territory. The bank has signalled that its hiking cycle could be finished. The consensus among economists and traders is that the BoC will start to lower interest rates by the middle of next year.
The GDP figures showed several areas of weakness. Business investment fell at an annualized rate of 10.1 per cent in the third quarter, while exports shrank by 5.1 per cent. Statscan noted that inventories accumulated at the slowest pace in two years. Household spending was essentially flat for a second consecutive quarter.
The household savings rate picked up to 5.1 per cent in the third quarter from 4.7 per cent in the second quarter. Canadians have been squirrelling away more money than usual; the average savings rate between 2015 and 2019 was 2.2 per cent. These figures are aggregated across all households, and savings rates tend to be greater among higher-income households, Statscan noted.
Despite the broad-based weakness, there were some areas of expansion. Government spending rose by 7.3 per cent annualized during the third quarter, which saw Ottawa send a “grocery rebate” to millions of households.
Higher government spending is “perhaps not where you want to see the growth,” Mr. Porter said.
Investments in residential housing jumped at an annualized rate of 8.3 per cent in the third quarter, the first increase since early in 2022. This was driven by a sharp increase in new construction, offsetting the drag from weaker homebuying activity as higher mortgage costs put a chill on the resale market.
Final domestic demand – a metric that includes household and government consumption, along with capital investments – rose at an annualized pace of 1.3 per cent, similar to growth in the second quarter.
This is “among the things I watch beneath GDP numbers for signs of a genuine downturn in the domestic economy, and that’s not happening here,” Derek Holt, head of capital markets economics at Bank of Nova Scotia, said in a note.
Canada is widely considered by economists to be especially sensitive to rising interest rates, because the average household is highly indebted and many families are facing the prospect of steeper costs when their mortgages renew in the coming years. The Bank of Canada has increased its benchmark rate to 5 per cent from emergency lows of 0.25 per cent in early 2022 – the quickest pace of tightening in decades.
However, Bank of Canada Governor Tiff Macklem said last week that borrowing costs may be high enough to bring inflation under control. In recent weeks, economists and traders have speculated over the timing of potential rate cuts. Interest-rate swaps, which capture market expectations about monetary policy, are pricing in a quarter-point rate cut by April, 2024. A week ago, traders were expecting a cut by June.
Even so, the economic outlook is subdued. The federal government’s recent fall economic statement included an estimate of 0.4-per-cent growth in real GDP in 2024, based on a survey of private-sector economists.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
