Canada’s economy ended last year on a surprisingly positive note, fueled by increased activity in the manufacturing and goods-producing sectors. The country’s gross domestic product (GDP), a comprehensive measure of goods and services produced across the economy, rose by 0.2% in November to reach 2.212 trillion Canadian dollars (equivalent to $1.651 trillion USD). Compared to the same period the previous year, GDP by industry saw a solid growth of 1.1%.
According to early estimates, Statistics Canada predicts an even stronger growth of 0.3% for December, indicating a potential 1.2% expansion on an annualized basis in the final quarter of 2023. This rebound follows a slight contraction in the previous quarter and may exceed the central bank’s forecast.
Notably, November marked the first month of economic growth since May, surpassing economists’ expectations of a 0.1% increase in GDP. This encouraging performance was primarily driven by robust growth in the country’s goods-producing industries, outpacing marginal growth from services-producing industries. The latter managed to thrive despite public-sector strikes in Quebec.
Looking at specific sectors, the data agency’s flash estimate for December indicates continued gains in manufacturing, real estate and rental and leasing, and mining, quarrying, and oil and gas extraction. However, there were declines in transportation and warehousing, construction, and educational services.
Overall, the GDP by industry suggests a 1.5% expansion for the Canadian economy in 2023.
The Bank of Canada, when considering expenditure-based accounts that include factors like inventory, projects a flat annualized GDP growth in the fourth quarter of last year, following a contraction of 1.1% in the third quarter.
Canadian Economy Faces Headwinds Amidst Challenging Conditions
The Canadian economy experienced a period of stagnation and slight decline in October. This can be attributed in part to various challenges the country encountered, such as wildfires that impacted mining and energy production, as well as strikes that disrupted key trade routes and hindered the supply chain.
As a response to the economic situation, the central bank opted to maintain its benchmark interest rate at 5% during its latest policy meeting. It anticipates that economic growth will remain close to zero in the first quarter of this year. The slowdown can be attributed to consumers curtailing their spending due to rising prices and interest rates, along with a contraction in business investments.
Despite the sluggish economy, the labor market has shown signs of loosening, resulting in a slight increase in the jobless rate. However, wage growth continues to outpace inflation. Meanwhile, the Bank of Canada expects inflation to hover around 3% throughout the first half of 2024, with a gradual return to its target of 2% by 2025.
In November, data from Statistics Canada revealed that non-durable goods manufacturing experienced a 1.2% increase, marking its most significant monthly gain since May. This growth was primarily driven by the chemicals sector, where several petrochemical plants resumed production after maintenance shutdowns. Additionally, there was an uptick in durable-goods manufacturing, which helped offset the decline observed in October.
Furthermore, wholesale trade rebounded in November following two consecutive months of decline. The transportation and warehousing sectors also experienced expansion after recovering from strikes on the St. Lawrence seaway. The mining, quarrying, and energy extraction industries witnessed a second consecutive monthly increase, largely driven by the oil and gas sector.
Despite these positive developments, Canadian educational services recorded a decline in November for the first time since June. Strikes led by Quebec teachers and some healthcare workers limited growth within the public sector.
In conclusion, despite the challenges faced by the Canadian economy, there have been notable recoveries and improvements in various sectors. However, it remains crucial to address the headwinds and uncertainties to ensure stable and sustained economic growth.