Canada’s economy: Despite a contraction in the third quarter of 2023, Statistics Canada reports that Canada’s economy continues to struggle for growth as the year unfolds.
For the third consecutive month, the agency reported on Friday that the real gross domestic product (GDP) remained “essentially unchanged” in October.
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The manufacturing sector in Canada experienced its fourth consecutive monthly decline in October, along with decreases in wholesale trade. StatCan reported that increases in retail commerce and mining activity helped to offset GDP declines in other regions.
According to the agency, strike activity on the St. Lawrence Seaway caused the transportation and warehousing sectors to decline by 0.2 percent in October. Water transportation experienced its initial decline since the British Columbia port strikes in July.
Initially, StatCan projected a marginal increase in GDP of 0.2 percent for October in its forecasts. Additionally, September’s GDP figures were revised from a 0.1% increase to a stable rate.
November GDP may have increased by 0.1%; however, experts will revise those figures in January. Desjardins’ managing director and head of macro strategy, Royce Mendes, said the November increase did not signal a turnaround.
We anticipate a mild recession in Canada in 2024 due to rising interest rates affecting businesses and households.
Thus, even though the economy is currently faltering, it could begin to decline in early January, Mendes continued.
The annualized decline in Canada’s economic output during the third quarter of the year was 1.1%, which was a more pronounced contraction than the majority of economists had anticipated.
In a note, Marc Ercolao, an economist at TD Bank, projected that growth for the fourth quarter of the year will be below one percent annualized, which aligns approximately with the Bank of Canada’s estimates for the quarter. They released the data on Friday.
By sustaining modest growth in the fourth quarter, the Canadian economy can avert a technical recession that is anticipated in 2023. Some economists anticipate that a brief, modest recession may occur in early 2024.
To moderate inflation and stimulate spending, the Bank of Canada has been on the lookout for indications of economic weakness in Canada. In November, annual inflation stood at 3.1 percent, surpassing the forecasts of the majority of economists for the month but remaining five percentage points below the most recent summits observed in June 2022.
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In a note to clients on Friday, RBC’s assistant chief economist Nathan Janzen stated that indications of an economic deceleration and labor market relaxation should “bolster confidence” that price growth will further decelerate to the central bank’s objective of two percent.
Janzen therefore opined that further interest rate increases were “becoming progressively improbable” and projected that rate reductions would commence in the second quarter of 2024.
In light of the data released on Friday, Reuters reported that money markets continue to estimate a 25% probability of a rate cut in January and a 50% probability of a move in March. April features a complete discount on a trim.
Despite the economy’s deceleration, Ercolao anticipates that the central bank will “maintain vigilance and refrain from prematurely declaring victory.”
“However, all things considered, the bank should enter the new year with a sense of confidence,” he stated.
