Canadian economy not in recession, but 2023 was one of its weakest recent years


The Canadian economy continues to beat recession fears, posting modest growth in the fourth quarter even as high interest rates weighed on consumers and businesses.

Statistics Canada reported Thursday that real gross domestic product increased by an annualized rate of one per cent, beating economists’ expectations and the Bank of Canada’s forecast for the final three months of 2023.

“We still are living in a world of high interest rates, where Canadians and Canadian businesses are constrained. And as a result, we’re essentially in this slow growth time period right now for as long as interest rates remain high,” said James Orlando, TD’s director of economics.

The increase follows a decline in the third quarter of 0.5 per cent.

Growth in the fourth quarter was driven by a rise in exports, while housing and business investment both fell.

The federal agency says outside of 2020, economic growth in 2023 rose at its slowest pace since 2016.

In December, real GDP was flat as goods-producing industries contracted and Quebec’s public sector workers’ strike weighed on growth.

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Business insolvencies jumped 41 per cent in 2023, compared to 2022, as pandemic debt and high interest rates collided. Consumer insolvencies are also up, by 23 per cent.

BMO chief economist Douglas Porter says the economy is “grinding forward” with help from strong U.S. spending trends, which have boosted Canadian exports.

“There’s no debate that growth is nevertheless anemic, especially when cast in per capita terms,” he said in a client note.

Real GDP per capita is down more than two per cent from a year ago, he noted

High interest rates have put a damper on Canadians’ finances as the Bank of Canada holds its key interest rate at five per cent, the highest it’s been since 2001.

Households continue to renew their mortgages at higher rates, which is causing a pullback in consumer spending and a slowdown in sales for businesses.

Thursday’s report says while consumer spending was up for the quarter, it continued to decline on a per capita basis as the country experiences strong population growth.

A preliminary estimate suggests real GDP grew by 0.4 per cent in January.

Orlando says he’s taking that estimate with a grain of salt given the early figures are later revised by the federal agency.

Additionally, internal TD data suggests consumers are pulling back on spending, he said.

Central bank rate decision highly anticipated

The Bank of Canada has signalled that its next move is most likely a rate cut as inflation eases and higher rates dampen economic growth.

Canada’s annual inflation rate ticked down to 2.9 per cent in January amid a broad-based slowdown in price growth.

Most economists expect the central bank to start lowering its key rate around the middle of the year, but a stronger-than-expected economy may reduce the urgency for the central bank to act soon.

“This changes little for the Bank of Canada, as conditions don’t appear to be worsening so there’s no urgency to cut rates,” Porter said. “With growth still well below potential, disinflationary pressure will continue, but it will require ongoing patience.”

The Bank of Canada is set to announce its next interest rate decision on Wednesday.

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Canada’s inflation rate dropped lower than expected in January — to 2.9 per cent from 3.4 per cent in December, but many consumers say they’re still feeling financial pain.



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