Economy posted no growth in the fourth quarter; consumer spending is holding on



Canada’s economy was stagnant at the end of 2022, the latest GDP report shows, but consumer spending is still on an upswing.

A Statistics Canada report this week showed real gross domestic product unchanged in the fourth quarter of 2022, after five consecutive quarters of growth – and showed the economy contracted by 0.1 per cent in December.

Statistics Canada’s preliminary estimate had predicted 1.6 per cent annualized growth for the quarter, but now expects the economy bounced back in January, posting 0.3 per cent growth in real GDP.

After declining by 0.1 per cent in the third quarter, household spending bounced back by 0.5 per cent in the fourth quarter.

“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,” TD’s director of economics James Orlando told the Canadian Press.

The fourth quarter slowdown was largely driven by businesses accumulating less inventory than in the previous two quarters after inventories reached record levels earlier in the year as a result of easing supply chains.

Business investment also declined for a third consecutive quarter as higher interest rates weakened housing investment in 2022.

In the same period, wages increased and the household savings rate was six per cent in the fourth quarter, up from five per cent 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 per cent increase in Old Age Security payments for seniors aged 75 years and over.

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

However, economists expect the Canadian economy won’t be able to avoid a recession in the first half of the year as higher interest rates dampen spending.

Since March, the Bank of Canada has raised its key interest rates from near-zero to 4.5 per cent, the highest it’s been since 2007.

The central bank announced in January it would take a “conditional pause” on increases to assess how the economy is responding to higher interest rates.

The Bank of Canada is set to make its next interest rate announcement on March 8.

The Bank of Canada is forecasting inflation will slow to three per cent by mid-2023 and fall back to the two per cent target next year.

It’s hoping inflation can come back down to target without a sharp economic downturn. At the same time, the central bank has stressed that returning to normal price growth is its primary focus, one that could come at the expense of a more severe economic contraction.



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