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Canadian Economy Stalls in Q4; Reinforces Likelihood of Bank of Canada Pause

Published 2023-02-28, 12:10 p/m
© Reuters.

By Ketki Saxena 

Investing.com – The Canadian economy stalled in the fourth quarter of last year, with real gross domestic product remaining unchanged in the Q4 2022 after five consecutive quarters of growth.

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

In December, Canada's total economic output declined by 0.1% from November's level.

Business inventories slowed after two quarters of record growth, weighing significantly on real GDP growth. Business spending on machinery and equipment also fell, declining by 7.8% in the quarter, the second straight quarterly decline.

On the consumer side, housing investment also weighed on GDP, falling by 2.3% in the quarter. six per cent in the fourth quarter, up from five per cent the previous quarter.

On a positive note, the household saving rate improved to 6% from 5% in the previous quarter, with StatsCan attributing this improvement in part 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.

Today’s data shows that the Canadian economy is slowing more than expected following the Bank of Canada’s rate hike spree, that has seen the benchmark rate soar from 0.25% at the beginning of last year to its current level of 4.5%. 

At its most recent policy meeting, the Bank of Canada announced a conditional pause on rate hikes, with further moves being more data on incoming data, of which today’s GDP reading is a key indicator.

"The latest readings on Canadian GDP will allow the Bank of Canada to defend its pause next week with credible evidence that inflation and the economy are slowing," Desjardins economist Royce Mendes noted. 

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