The Canadian economy was treading water at the end of 2022, the latest GDP report shows, but beneath the disappointing data is resilient consumer spending keeping the economy afloat.
The report, which said the economy contracted by 0.1 per cent in December, showed 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.
But Statistics Canada expects the economy bounced back in January, posting 0.3 per cent growth in real GDP.
The fourth quarter also included 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.
TD’s director of economics James Orlando said the consumer, which is “the real engine of the Canadian economy,” is still faring relatively well.
“Overall, the headline print looks really bad. But when you pull back the lens … Some of the underlying fundamentals are still coming in quite good for the Canadian economy,” Orlando said.
The fourth quarter slowdown was largely driven by businesses accumulating less inventory than in the previous two quarters.
Orlando said inventories reached record levels earlier in the year as a result of easing supply chains. But that accumulation wasn’t expected to last.
In addition to lower inventories, real business investment declined for a third consecutive quarter as higher interest rates weakened housing investment in 2022.
Although growth stalled for the quarter, Canadians saw their disposable incomes rise faster than their nominal spending, allowing them to save more money.
The federal agency said 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.
“All of this together means more money in the pockets of Canadians and … that Canadians are going to spend more,” Orlando said.
Looking ahead, Orlando said recent economic data has been coming in “much better than expected.”
The latest labour force survey showed the economy added 150,000 jobs last month, suggesting there’s still steam on the hiring front. Retail sales were also up in January.
These figures support forecasts for a rebound for economic growth in January.
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 announced in January it would take a conditional pause on hiking rates to assess how the economy is responding to higher interest rates.
If the economy continued to run hot or inflation proved sticky, the Bank of Canada made it clear it would be ready to jump back in and raise rates further.
But Orlando said it’s likely content with its decision to sit on the sidelines, given the softer GDP report.
The Bank of Canada is set to make its next interest rate decision on March 8.
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.
This report by The Canadian Press was first published Feb. 28, 2023.
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.
