Your Business News
Canada’s economy contracted more than expected, suggesting a pivot on rates
November 30, 2023
Authored by RSM Canada LLP
Kirby W. Houle, CPA, CA shared this article
REAL ECONOMY BLOG | November 30, 2023
Canada’s economy contracted more than expected in the third quarter, suggesting that the Bank of Canada might soon pivot to cutting rates, as early as April, to avoid a deeper recession than needed.
Canada’s gross domestic product declined by 0.3 per cent in the third quarter and by 1.1 per cent on an annualized basis, a steeper decline than expected, according to data released by Statistics Canada on Thursday. There has been barely any growth since May.
The lagged impact of prior rate hikes will continue to ripple through the economy, slowing business and consumer spending.
Businesses are delaying hiring and investments as they deal with the high costs of debt. Consumers, similarly, are pulling back spending as they face mounting mortgage interest rates and rents.
The central bank’s restrictive monetary policy continues to be felt throughout the economy, putting a lid on spending.
Exports led the decline, falling by 1.3 per cent in the third quarter as gasoline prices fell. Inventories also fell as businesses wind down their inventories in anticipation of lower demand.
Household expenditures remained flat, with household spending on services rising by 0.3 per cent while spending on durable and nondurable goods both fell by 0.4 per cent and 2.8 per cent, respectively.
These are aggregate numbers, though, aided largely by population growth. On a per capita basis, spending dropped as households dedicated a growing portion of their income to housing, leaving less for discretionary spending.
At the same time, the household savings rate climbed to 5.1 per cent in the third quarter, with rates in the higher-income brackets rising.
Households are choosing to save instead of spending since they anticipate slower wage growth, slower hiring and higher mortgage payments when their mortgage terms renew.
The takeaway
Looking ahead, Canada is on its way to entering next year with weak growth. Inflation is declining, with headline inflation expected to stay near 3 per cent in the months ahead.
With price stability in sight and the economy now contracting, the Bank of Canada can start thinking about rate cuts again.
Let's Talk!
Call us at 1 855 363 3526 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Tu Nguyen and originally appeared on 2023-11-30 RSM Canada, and is available online at https://realeconomy.rsmus.com/canadas-economy-contracted-more-than-expected-suggesting-a-pivot-on-rates/.
RSM Canada Alliance provides its members with access to resources of RSM Canada Operations ULC, RSM Canada LLP and certain of their affiliates (“RSM Canada”). RSM Canada Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM Canada. RSM Canada LLP is the Canadian member firm of RSM International, a global network of independent audit, tax and consulting firms. Members of RSM Canada Alliance have access to RSM International resources through RSM Canada but are not member firms of RSM International. Visit rsmcanada.com/aboutus for more information regarding RSM Canada and RSM International. The RSM trademark is used under license by RSM Canada. RSM Canada Alliance products and services are proprietary to RSM Canada.
FCR a proud member of RSM Canada Alliance, a premier affiliation of independent accounting and consulting firms across North America. RSM Canada Alliance provides our firm with access to resources of RSM, the leading provider of audit, tax and consulting services focused on the middle market. RSM Canada LLP is a licensed CPA firm and the Canadian member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM Canada Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.
For more information on how FCR can assist you, please call us at 1 855 363 3526
