Canada’s GDP saw another below trend performance in the fourth quarter of 2023. The economy grew by 0.99% quarter-over-quarter annualized (q/q) in Q4, with a revision for Q3 showing an improvement from -1.1% to -0.5% q/q. Additionally, January’s flash estimate indicated a monthly increase of +0.4%. Stripping out external factors, final domestic demand came in at a very weak -0.7% q/q.
December’s monthly gain was flat, a big miss from Statistics Canada’s flash estimate of +0.3%, as it appears they did not include the public sector strike in Quebec. Public sector activity decreased by 1%, which cut more than 0.2 percentage points from headline growth. This decrease was observed mainly in education (-3.8%) and healthcare (-0.2%). Service sectors remained flat overall, with gains in finance, real estate, and retail, while goods industries fell 0.2%, with declines in utilities, construction, and manufacturing.
International trade contributed to growth, with exports of goods and services increasing by 5.6% quarter-over-quarter. This growth was fueled by a 6.2% rise in exports of crude oil and crude bitumen, which coincided with sustained crude oil production in Alberta, as well as increased travel services and other transportation equipment and parts. Conversely, imports declined by 1.7% q/q, driven by decreases in intermediate metal products, tires, motor vehicle engines and parts, and passenger cars and light trucks.
Consumer spending rose by +1.0% q/q, primarily driven by significant growth in durable goods (+7.0%), such as new trucks, vans and utility vehicles. Easing supply chain snarls and rapid population growth were cited as drivers. Growth in services was more tepid at 0.4% q/q.
Business investment was a big drag on the quarter, with non-residential structures and machinery/equipment down 9.5% q/q. Residential investment also declined by 1.7% during the quarter. Despite increased activity in new construction (up 2.2%) and renovations (up 0.2%), the resale market weakened across Canada, offsetting the rise in housing investment due to a 7.7% decrease in ownership transfer costs in the fourth quarter.
After two stagnant quarters, a return to growth in the fourth quarter was widely anticipated. While last week’s report exceeded expectations, surpassing both consensus forecasts (+0.8%) and the Bank of Canada’s projections (0%), the story on the Canadian economy remains the same: high interest rates continue to dampen economic growth. Stripping out international factors, the economy actually contracted, and GDP per capita has declined in five of the last six quarters. The Bank has recognized this weakness in recent commentaries, but it is patiently waiting for inflation to follow suit. We still are calling for the Bank to cut rates in June.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Developing government-held land is crucial for tackling the housing affordability crisis, but execution presents significant challenges, as highlighted by recent events in Hamilton, Ontario. City council faced a deadlock over a proposal to build 67 affordable homes on city-owned parking lots. Despite a net loss of just 27 parking spaces, counsellors placed parking concerns ahead of housing needs.
The city’s focus on parking over housing demonstrates a concerning lack of foresight. The impacts and obstacles to developing affordable housing are very real, but a willingness to explore unconventional approaches is crucial for tackling the complex challenges of the affordability crisis in Hamilton and communities across Canada.
For a complete take on the challenges and potential solutions, read the full article here: Affordable Housing for Cars or People?
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