Real gross domestic product (GDP) in Canada rose 0.8 per cent in the first quarter, after posting no change in the previous quarter, according to a report released Wednesday by Statistics Canada.
“Favourable international trade and growth in household spending were moderated by slower inventory accumulations as well as declines in housing investment and business investment in machinery and equipment. Final domestic demand increased 0.7 per cent in the first quarter of 2023 after remaining flat in the fourth quarter of 2022, explained the federal agency.
The annualized growth rate is 3.1 per cent.
Real gross domestic product and final domestic demand
Contributions to percentage change in real gross domestic product, first quarter of 2023
StatsCan said exports of goods and services rose 2.4 per cent in the first quarter of 2023, following a 0.5 per cent increase in the fourth quarter of 2022. The increase in the first quarter was led by passenger cars and light trucks, unwrought gold, silver, and platinum group metals and their alloys, other crop products, and wheat.
Top contributors to real exports, first quarter of 2023
“After two quarters of minimal growth, household spending rose for both goods (+1.5 per cent) and services (+1.3 per cent) in the first quarter of 2023. Expenditures on durable goods (+3.3 per cent) were driven by motor vehicles including new trucks, vans, and sport utility vehicles (+7.8 per cent). Spending on semi-durables (+4.3 per cent) was led by garments (+4.5 per cent), while spending on non-durable goods (-0.2 per cent) declined slightly,” said the report.
James Orlando, Senior Economist with TD Economics, said Canada’s economy bounced back in a meaningful way in the first quarter of 2023.
“Growth was driven by an acceleration in consumer spending, supported by a record-breaking increase in employment during the first quarter and wage growth that now outpaces inflation. This labour market strength enabled final domestic demand to surge by 2.6 per cent q/q, well above the trend rate of growth. The encouraging flash estimate for April GDP points to less of a deceleration heading into the second quarter than previously expected, with 2023 Q2 now tracking around 1 per cent q/q,” he said.
“The Bank of Canada’s (BoC) next interest rate decision is next week, and while today’s report might not force a move off the sidelines, it may be used as rationale for a hike later this summer. Thus far, the BoC’s rhetoric has focused on its expectation for a quick deceleration in economic growth over the remainder of the year. That slowdown still seems likely, but if the data keep coming in hot, the BoC may be compelled to move once again.”
Douglas Porter, Chief Economist with BMO Economics, said the run of sturdy data undoubtedly raises the odds that the Bank of Canada needs to go back to the well of rate hikes, and even puts some chance on a move as early as next week’s policy decision.
“However, given the uncertain backdrop and the possibility that inflation took a big step down in May, the BoC could opt to remain patient for a bit longer and signal that it’s open to hiking in July if the strength persists,” he said.
Andrew Grantham, an economist with CIBC Economics, said the Canadian economy made a solid start to 2023, with annualized growth of 3.1 per cent coming in modestly above the consensus and BoC’s latest forecasts (2.5 per cent and 2.3 per cent respectively) and well above what most forecasters were anticipating at the start of the year.
“Overall, the headline reading, composition of growth and handoff to Q2 were all slightly stronger than we had expected, raising the odds of another Bank of Canada rate hike. However, we still expect that they will want to wait to see more data and revise their forecasts (in the July MPR) before making a final decision on whether to raise rates again, rather than hike next week,” he said.
Mario Toneguzzi
(Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald, covering sports, crime, politics, health, faith, city and breaking news, and business. He works as well as a freelance writer for several national publications and as a consultant in communications and media relations/training. Mario was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list)
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