The Canadian economy experienced modest growth in the final quarter of 2023, expanding by one percent on an annualized basis, as reported by Statistics Canada. This growth came after a contraction in the third quarter, indicating a degree of resilience in the economy. Economists have provided various interpretations of this data, focusing on its implications for inflation and interest rate policies.
Douglas Porter of BMO Economics highlighted a mixed economic performance, noting that despite increases in exports and consumer consumption, there were contractions in several sectors such as housing, business investment, and government spending. He expressed caution regarding the Statistics Canada flash estimate for January 2024 and suggested that the overall data indicate a stuttering growth pattern, which is unlikely to prompt immediate changes in the Bank of Canada’s interest rate policies.
Nathan Janzen from RBC Economics pointed out that the economy might be showing signs of per-capita GDP contraction for the sixth consecutive quarter, with the final month of the quarter showing flat GDP growth. Janzen observed that domestic demand weakened, contracting for the first time in a year, but he does not see this as sufficient reason for the Bank of Canada to cut interest rates immediately.
Andrew Grantham of CIBC Economics described the GDP growth in the fourth quarter as a “catch-up” phenomenon, driven by eased supply chains and a rise in consumer spending, particularly in car sales. He anticipates a stronger performance in the first quarter of 2024 but maintains that inflation running below the Bank’s projections will likely lead to a rate cut in June.
Stephen Brown from Capital Economics noted that the GDP data exceeded the Bank of Canada’s expectations of stagnation at the year’s end. However, he also acknowledged the mixed signals in the report, particularly the flat GDP in December. Brown suggested that, assuming January’s preliminary GDP growth estimate of 0.4 percent is accurate, the economy might see modest expansion in the current quarter, possibly delaying any immediate interest rate cuts by the bank.
In summary, while the Canadian economy showed some growth in the last quarter of 2023, the overall outlook remains cautious among economists, with mixed signals on various economic indicators. The consensus seems to lean towards continued patience and a watchful approach to interest rate adjustments by the Bank of Canada.
