The Canadian economy accelerated in the second quarter as the nation benefited from surging commodity prices and got a boost from the lifting of COVID-related lockdowns, though signs are emerging momentum is waning.
Gross domestic product rose at a 3.3 per cent annualized rate after a revised 3.1 per cent increase in the first three months of the year, Statistics Canada reported Wednesday. Growth was led by stronger household consumption and business spending on inventories.
The numbers paint a picture of an economy running hot for much of the first half of 2022, even as the U.S. and other countries stumbled, but is now entering a period of much slower growth in the face of decades-high inflation and rising interest rates.
The latest monthly readings show the economy contracted by 0.1 per cent in July, after a weak 0.1 per cent gain in June and flat growth in May, adding to evidence of slowing economic momentum.
Economists anticipate Canada’s growth rate will fall to below 1.5 per cent annualized in the second half of this year and into 2023, with some even predicting a recession possible amid one of the most aggressive hiking cycles ever by the Bank of Canada.
A median estimate in a Bloomberg survey of economists expected a 4.4 per cent annualized growth rate in the second quarter. The Bank of Canada forecast 4.0 per cent in their July Monetary Policy Report.
The weaker-than-expected reading reflects strong growth in imports. The part of household and business spending that is used to buy goods and services from other countries is not counted as domestic output.
RATE HIKES
The nation’s central bank has already increased its overnight policy rate by 2.25 percentage points since March, and is expected to continue hiking through the rest of the year. Investors are almost fully pricing in another 75 basis point increase at the Bank of Canada’s next policy decision on Sept. 7.
Canadians are also facing higher prices for virtually everything, with wage gains not keep up with the pace of inflation, which has hovered around 8 per cent in recent months.
To be sure, higher prices didn’t stop households from accelerating their spending in the first half. Household consumption jumped by an annualized 9.7 per cent in the second quarter.
Canada’s resource-rich economy in the first half also benefited from surging commodity prices, driving incomes higher and stoking demand.
Growth in nominal output rose 4.2 per cent on a non-annualized basis due to rising prices for national produced goods and services — the strongest increase outside of the pandemic recovery since 1981. Worker compensation was up a robust 2.0 per cent.
Businesses took advantage of the buoyant demand and strong commodity prices to accumulate inventories, totaling $47 billion. Inventory buildup was the biggest contributor to growth in the second quarter.
Business investment in structures and machinery and equipment also came in at a very strong 14 per cent annualized pace.
U.S. DECOUPLING
The strong demand helped Canada experience a rare economic decoupling from the U.S. Over the past six months, the U.S. expansion went into reverse with back-to-back quarterly contractions, even as Canada record one of the strongest six-month periods of growth in recent decades.
But that outperformance, at least compared to the U.S., represents in part a catching-up. Canada suffered through more strict lockdowns than the U.S., where the full recovery in GDP was faster.
Economists anticipate the Canadian and U.S. economies will converge in the second half of this year, and grow by about the same pace over the next couple of years.
In Canada, the impact of higher interest rates is already being felt, the data show. Residential investment fell by an annualized 28 per cent rate in the second quarter, the second-largest drop since the early 1960s. The largest quarterly decline in housing investment was during the depths of the pandemic.
The bulk of the gains in household consumption, meanwhile, were in services and semi-durables. Spending on interest-sensitive durable goods fell.
TRADE DRAG
Strong consumer demand in the first half, meanwhile, isn’t fully translating into more economic activity. Much of the spending is going abroad, with imports shooting up an annualized 31 per cent in the second quarter.
While exports also jumped by an annualized 11 per cent, shipments abroad failed to keep up with the pace of imports. Overall, the trade sector acted as a drag on growth, lowering growth by an annualized 5.2 percentage points.
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.
