Canada’s economy grew slower than expected both in the final month and final quarter of last year, which suggests actions by the country’s central bank are having the desired effect of reducing demand.
On the month, real GDP growth contracted 0.1% to fall short of the flat reading that analysts had predicted and last month’s 0.1%.
In the three months to December, economic activity was effectively unchanged after five consecutive quarters of growth. The third quarter increase rate was revised down a tenth to 0.6%.
Capital Economics analyst Stephen Brown said, “The stagnation in fourth-quarter GDP, together with the downward revision to [Q3], leaves the economy in worse shape than the Bank of Canada expected. That is another reason to think that, even though the US Fed is still hiking, the bank will be content with leaving policy unchanged.”
Breaking down the data, Statistics Canada reported that slower inventory accumulations along with declines in business investment in machinery and equipment, which fell 7.8%, and slumping housing, down 2.3%, offset higher household spending, which rose 0.5%, and additional government expenditure and improved net trade. Exports of goods and services edged up 0.2% over the period after a 2.6% increase the previous quarter.
Softer home sales over the course of the year coincided with the BoC’s hikes, and they pointed to January’s 25 basis point move as well as the two further rate increases in Q4. “The subsequent rise in mortgage interest rates put a damper on housing demand, as the ownership transfer costs decreased nationally by 26.3%, with Alberta recording the only increase (0.1%) among provinces,” said statisticians.
Newer data in the form of January’s flash GDP 0.3% estimate presented a more cheerful outlook for the economy. “While the unseasonably warm weather may have played a supporting role, Stats Can noted that activity fell in two sectors that would normally have benefitted – construction and retail trade,” Capital Economics’ Brown posited.
BMO Capital Markets analyst Douglas Porter concurred and has pencilled in a 0.5% expansion for Q1. Analysts at the bank calculated that even if the next two months are only flat, GDP growth for the quarter will be about 1.0%.
“Today's mostly soft report won't be a disappointment to policymakers, as the Bank of Canada is openly attempting to take some steam out of the economy,” Porter said. “And zero-point-zero growth is about as little steam as one could ask for, without pushing things into an outright downturn.”
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- Monthly, quarterly GDP growth miss forecasts
- Inventories and investment weigh on economic output
- Higher household and government spend help offset declines
- Slowdown justifies BoC rate hike pause
- Improvement at start of 2023
By Harry Daniels
LiveSquawk News
@harrydaniels71
28 February 2023|14:45 GMT
Canada’s economy grew slower than expected both in the final month and final quarter of last year, which suggests actions by the country’s central bank are having the desired effect of reducing demand.
On the month, real GDP growth contracted 0.1% to fall short of the flat reading that analysts had predicted and last month’s 0.1%.
In the three months to December, economic activity was effectively unchanged after five consecutive quarters of growth. The third quarter increase rate was revised down a tenth to 0.6%.
Capital Economics analyst Stephen Brown said, “The stagnation in fourth-quarter GDP, together with the downward revision to [Q3], leaves the economy in worse shape than the Bank of Canada expected. That is another reason to think that, even though the US Fed is still hiking, the bank will be content with leaving policy unchanged.”
Breaking down the data, Statistics Canada reported that slower inventory accumulations along with declines in business investment in machinery and equipment, which fell 7.8%, and slumping housing, down 2.3%, offset higher household spending, which rose 0.5%, and additional government expenditure and improved net trade. Exports of goods and services edged up 0.2% over the period after a 2.6% increase the previous quarter.
Softer home sales over the course of the year coincided with the BoC’s hikes, and they pointed to January’s 25 basis point move as well as the two further rate increases in Q4. “The subsequent rise in mortgage interest rates put a damper on housing demand, as the ownership transfer costs decreased nationally by 26.3%, with Alberta recording the only increase (0.1%) among provinces,” said statisticians.
Newer data in the form of January’s flash GDP 0.3% estimate presented a more cheerful outlook for the economy. “While the unseasonably warm weather may have played a supporting role, Stats Can noted that activity fell in two sectors that would normally have benefitted – construction and retail trade,” Capital Economics’ Brown posited.
BMO Capital Markets analyst Douglas Porter concurred and has pencilled in a 0.5% expansion for Q1. Analysts at the bank calculated that even if the next two months are only flat, GDP growth for the quarter will be about 1.0%.
“Today's mostly soft report won't be a disappointment to policymakers, as the Bank of Canada is openly attempting to take some steam out of the economy,” Porter said. “And zero-point-zero growth is about as little steam as one could ask for, without pushing things into an outright downturn.”