Economy dips, but spending strong
The Canadian Press - Feb 28, 2023 - Business Buzz

Photo: The Canadian Press

OTTAWA — The Canadian economy was treading water at the end of 2022, the latest GDP report shows, but beneath the disappointing data is resilient consumer spending keeping the economy afloat.

On Tuesday, Statistics Canada said real gross domestic product was unchanged in the fourth quarter of 2022 after five consecutive quarters of growth.

The report, which said the economy contracted by 0.1% in December, showed a much grimmer economy than forecasters were expecting as higher interest rates took a more noticeable toll on the economy.

Statistics Canada’s preliminary estimate had predicted 1.6% annualized growth for the quarter.

But Statistics Canada expects the economy bounced back in January, posting 0.3% growth in real GDP.

The fourth quarter also included some silver linings for Canadians. After declining by 0.1% in the third quarter, household spending bounced back by 0.5% in the fourth quarter.

TD’s director of economics James Orlando said the consumer, which is “the real engine of the Canadian economy,” is still faring relatively well.

“Overall, the headline print looks really bad. But when you pull back the lens … Some of the underlying fundamentals are still coming in quite good for the Canadian economy,” Orlando said.

The fourth quarter slowdown was largely driven by businesses accumulating less inventory than in the previous two quarters. Orlando said inventories reached record levels earlier in the year as a result of easing supply chains. But that accumulation wasn’t expected to last.

In addition to lower inventories, real business investment declined for a third consecutive quarter as higher interest rates weakened housing investment in 2022.

Although growth stalled for the quarter, Canadians saw their disposable incomes rise faster than their nominal spending, allowing them to save more money.

The federal agency said the household savings rate was 6% in the fourth quarter, up from 5% the previous quarter.

The report partly attributes this improvement in household finances to government benefits, including the one-time top-up to the GST tax credit and a 10% increase in Old Age Security payments for seniors aged 75 years and over.

The Liberal government introduced these measures targeted at lower-income Canadians to help them cope with higher inflation.

“All of this together means more money in the pockets of Canadians and … that Canadians are going to spend more,” Orlando said.

Looking ahead, Orlando said recent economic data has been coming in “much better than expected.”


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