Canada Avoided Recession With Modest Growth at End of 2023

Statistics Canada signage is seen in Ottawa on March 8, 2019. The Canadian Press/Justin Tang

Canada yet again dodged the recession bullet after posting modest fourth-quarter growth in 2023, making it likely the Bank of Canada will hold the line on interest rates.

Real gross domestic product (GDP) increased by an annualized rate of 1 percent, according to a new report from Statistics Canada. The increase surpassed the expectations of both economists and the central bank.

“A return to growth in the fourth quarter was widely expected, following two quarters of effectively no growth in the country,” TD director and senior economist James Orlando wrote in a Feb. 29 note.

“While today’s report came in better than consensus and much better than what the BoC was thinking, the narrative on the Canadian economy remains the same: High interest rates are weighing on economic growth.”

The GDP increase comes on the heels of a third-quarter decline of 0.5 percent. StatCan attributed the fourth-quarter growth to a rise in exports.

Bank of Montreal chief economist Douglas Porter says the economy is “grinding forward” thanks to “solid” U.S. spending trends that in turn have boosted Canadian exports.

“There’s no debate that growth is nevertheless anaemic, especially when cast in per capita terms,” Mr. Porter said in a Feb. 29 note.

Other than 2020, last year’s economic growth was the slowest on record since 2016, according to StatCan data.

Despite that, household spending rose 0.2 percent in the final quarter of the year after edging up 0.1 percent in the third quarter. The increase, StatCan said, was led by “higher spending” on new trucks, vans, and utility vehicles.

While consumer spending increased in the final quarter of the year, it continued to decline on a per capita basis due to the country’s strong population growth.

Housing investment also fell, dipping by 0.4 percent, while business investment dropped 3 percent, the sixth decline for both in the last seven quarters.

Canada’s annual inflation rate decreased to 2.9 percent in January due to a slowdown in price growth.

While the Bank of Canada has signalled a rate cut could occur as inflation eases, economists aren’t expecting it to happen until mid-year.

“Conditions don’t appear to be worsening so there’s no urgency to cut rates,” Mr. Porter noted. “With growth still well below potential, disinflationary pressure will continue, but it will require ongoing patience.”

CIBC senior economist Andrew Grantham agreed.

“Growth in the final quarter of last year, combined with early tracking for Q1, is running somewhat stronger than the Bank of Canada had assumed in its January monetary policy report (MPR),” Mr. Grantham wrote in a Feb. 29 note to investors. “Given that inflation is actually running below the Bank’s January MPR projections, today’s data doesn’t change our forecast for a first interest rate cut in June.”