Canada’s economic performance has surpassed expectations, showing resilience in the face of challenges. Recent data from Statistics Canada reveals that real gross domestic product (GDP) experienced growth in the fourth quarter, resulting in positive annual growth. This positive momentum was accompanied by an upward revision of the previous quarter’s decline, indicating that while growth may be sluggish, the economy is not in recession. Some analysts suggest that this resilience could reduce the immediate need for Bank of Canada rate cuts.
In the last quarter of 2023, Canadian real GDP managed to exceed inflation, recording a growth of 0.2%, translating to an annual growth rate of 1.0%. This positive outcome was supported by a revision of the third quarter’s figures, reducing the initially reported decline to less than half. Consequently, the annual growth for 2023 reached 1.1%, although it may seem modest compared to population growth rates. Nevertheless, achieving real growth amid inflationary pressures presents a significant achievement.
Douglas Porter, Chief Economist at BMO, characterized the results as generally positive but highlighted the challenges of maintaining positive growth. He noted that the fourth-quarter increase was primarily driven by net exports and a slight uptick in consumer spending, while other sectors experienced declines, including housing, business investment, and government spending.
Despite concerns over declining housing investment, particularly in the resale segment, where ownership transfer costs saw a notable decrease, other areas, such as new construction and renovations, remained resilient. The housing market’s weakness appears to be concentrated mainly in resale activities, influenced by factors such as record-setting existing home sales in previous years.
While acknowledging areas of weakness, such as anemic per capita growth and declining business investment, analysts note that the overall resilience of the economy has been better than anticipated. Factors such as stable employment, slowing inflation, and GDP outperforming forecasts contribute to a more positive economic outlook, reducing the urgency for immediate rate cuts by the Bank of Canada.
