Canada’s economy is still struggling to grow heading into the end of the year after contracting in the third quarter of 2023, according to Statistics Canada.
Real gross domestic product (GDP) for October was “essentially unchanged” for a third consecutive month, the agency said Friday.
Canada’s manufacturing sector saw its fourth decline over five months in October, with contractions in wholesale trade as well. Increased mining activity and retail trade figures helped to offset GDP declines elsewhere, StatCan said.
Strike activity on the St. Lawrence Seaway drove a 0.2 per cent decline in the transportation and warehousing sector in October, according to the agency. Water transportation saw its first drop since the port strikes in British Columbia in July.
StatCan had originally expected slight GDP growth of 0.2 per cent for October in its early estimates. September’s GDP results were also revised down to flat from 0.1 per cent growth.
The initial forecast for November GDP shows the economy might have rebounded somewhat with 0.1 per cent growth, though those figures will be updated in January.
Royce Mendes, managing director and head of macro strategy at Desjardins, in a note said that the uptick in November wasn’t enough to suggest that the economy was turning a corner.
“As more households and businesses feel the impacts of higher interest rates in 2024, we expect Canada to fall into at least a mild recession. So while the economy is sputtering now, it might begin rolling backwards early in the new year,” Mendes added.
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Canada’s economic output declined 1.1 per cent on an annualized basis in the third quarter of the year, a sharper drop than most economists had expected.
TD Bank economist Marc Ercolao wrote in a note that Friday’s GDP print has growth tracking below one per cent annualized for the fourth quarter of the year, which is roughly in line with the Bank of Canada’s estimates for the quarter.
If the Canadian economy manages to eke out modest growth in the fourth quarter, it will avoid a technical recession in 2023. Some forecasters expect a short, shallow recession could hit in early 2024.
The Bank of Canada has been looking for signs of weakness in the Canadian economy as evidence that spending demand will ease and tamp down inflation. Annual inflation came in at 3.1 per cent in November, higher than most economists expected for the month but still five percentage points down from the recent peaks seen in June 2022.
RBC’s assistant chief economist Nathan Janzen said in a note to clients Friday that signs of a slowing economy and easing in the labour market should “boost confidence” that price growth should continue to cool back to the central bank’s two per cent target.
Additional interest rate hikes are therefore “increasingly unlikely,” Janzen said, forecasting rate cuts instead to begin in the second quarter of 2024.
Following Friday’s data, Reuters said money markets still see a roughly 25 per cent chance of a rate cut in January and a 50 per cent chance of a move in March. A cut is fully discounted for April.
Despite a cooling economy, Ercolao said he expects the central bank will “remain vigilant and not declare victory too early.”
“But all said, the Bank should feel a sense of comfort heading into the new year,” he said.
— with files from Reuters
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