The national economy continued to grow overall in the first quarter of 2023 as consumers spent more in the face of recession fears, according to Statistics Canada.
Canada’s economy grew at an annualized rate of 3.1 per cent in the first quarter, beating Statistics Canada’s early estimates of 2.5 per cent. The Bank of Canada’s latest forecasts had called for 2.3 per cent growth in Q1.
Household spending was up in the quarter following two periods of minimal growth, the agency said Wednesday, but housing investment slowed in the first quarter amid higher borrowing costs.
StatCan said Canadians particularly spent more on new vehicles in Q1. In a note to clients Wednesday, CIBC senior economist Andrew Grantham ascribed that increase to relief in supply chain kinks meaning previous car orders could finally be delivered.
Canadians also returned to dining and vacations in the quarter, Statistics Canada said, with spending picking up for food, alcoholic and non-alcoholic beverages and travel expenditures.
StatCan had also expected the economy contracted by a modest 0.1 per cent in March, but Wednesday’s release shows economic growth was flat for the month.
Flash estimates for April show growth of 0.2 per cent. Grantham said that was a surprise as the public sector strike in that month was expected to be a drag on growth.
Weakness persisted in Canada’s housing market in the first quarter of the year. New construction was down in every province and territory except the Yukon, StatCan said, while renovations and figures tied to resale activity were also down nationally.
The first quarter GDP figures mark a rebound from what StatCan called essentially flat growth in the final quarter of 2022.
The GDP report comes ahead of the Bank of Canada’s next interest rate decision June 7.
The central bank, which is focused on returning inflation to its two per cent target, paused its aggressive rate hiking cycle earlier this year.
However, governor Tiff Macklem has signalled that the Bank of Canada is still evaluating whether interest rates need to go higher to tame inflation which ticked higher in April.
Grantham said that while the stronger-than-expected GDP figures raise the odds of an interest rate hike next week, he expects the central bank will continue to wait for more data and revise its inflation and GDP forecasts in July before moving again.
— with files from the Canadian Press
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