(OTTAWA) Canada’s gross domestic product (GDP) slowed sharply in the fourth quarter and ended the year stable, well below analysts’ expectations, after recording five consecutive increases, the Canadian statistics institute announced on Tuesday.
The poor economic performance is notably due to a sharp decline in business investment in machinery and equipment.
This stagnation surprised analysts who were expecting growth of around 1.6%.
“Real GDP growth stagnated as the economy saw no growth in the fourth quarter” however “final domestic demand-a better measure of underlying economic dynamics in Canada-increased 1.0% after decreased in the third quarter,” notes Royce Mendes, analyst at Desjardins.
Andrew Grantham, his colleague at CIBC, shared the finding, noting that the Canadian economy “surprisingly stalled” during the quarter, “but early indications suggest that it started the new year on a better footing.”
Business investment in machinery and equipment fell (-7.8%) mainly due to lower spending on computers.
Housing investment continued to decline amid rising borrowing costs. Demand was dampened by rising mortgage interest rates.
During the fourth quarter, the Bank of Canada raised its key rate twice, which reached 4.25% in December 2022 compared to 0.25% a year earlier, in December 2021.
“The fourth quarter and the first (of 2023, editor’s note) look likely to be slightly lower than the Bank of Canada’s previous forecasts, which supports the current pause in terms of interest rates”, remarked Andrew Grantham.
In early February, Tiff Macklem, governor of the institution, announced a “pause” in the rise in its key rate, which reached 4.5% in January 2023.
Household spending increased with a surge in purchases of trucks, vans and new cars.
Canadians saved less in 2022 than in 2021, with a savings rate of 6% compared to 11% the previous year, in the context of the end of government aid linked to the pandemic. However, this rate is about three times higher than in 2019, before the pandemic.
Exports of goods and services edged up (+0.2%), with increases for wheat, canola and travel services.
Imports fell by 3.2% in the fourth quarter, a decline mainly due to the decline in pharmaceutical and medicinal products, as well as computers.
In addition, Statistics Canada revised third-quarter GDP down to 2.3% from 2.9 previously reported.
Many countries around the world are facing a slowdown in their economy. Like Canada, Britain recorded zero growth in the fourth quarter and other countries entered recession, such as Finland and Hungary.