Canadian economy sees slight uptick in October

Real gross domestic product (GDP) in Canada edged up (+0.1 per cent) in October, following a +0.2 per cent uptick in September. Growth in services-producing industries (+0.3 per cent) was partially offset by a decline in goods-producing industries (-0.7 per cent), as 11 of 20 industrial sectors increased in October, reported Statistics Canada on Friday.

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“Advance information indicates that real GDP increased 0.1 per cent in November. Increases in the utilities, wholesale, and finance and insurance sectors were partially offset by decreases in the construction, retail, and mining, quarrying, and oil and gas extraction sectors. Owing to its preliminary nature, these estimates will be updated on January 31, 2023 with the release of the official GDP data for November 2022,” said the federal agency.

It said services-producing industries expanded in October, led by gains in the public sector, wholesale and client-facing industries. Services-producing industries have now increased for six consecutive months. Meanwhile, goods-producing industries cooled down in October, after expanding in the previous four months. The October decline was led by a decrease in mining, quarrying, and oil and gas extraction and weakening in the manufacturing sector.

“Heading into today’s release we were expecting a slowdown from the above trend pace of growth witnessed over the first nine months of 2022. With the positive print today and the flash estimate for no growth in November, our tracking for the fourth quarter remains around one per cent annualized, very slightly above our recent forecast. This deceleration of growth is aligned with our view that the lagged effects of interest rate hikes and still high inflation is causing Canadians to gradually tighten their purse strings,” said James Orlando, Senior Economist, TD Economics.

“Though there will be a lot of data coming out between now and the Bank of Canada’s (BoC’s) next policy decision in late January, we think the Bank has another hike left in store. That would bring the policy rate to a very restrictive 4.5 per cent.”

Robert Kavcic, Senior Economist, BMO Economics, said the Canadian economy has been holding up relatively well overall heading into the end of 2022, largely because the service sector is now carrying the weight.

“But the real question will be how things shake out during the first half of next year, when aggressive Bank of Canada rate hikes start to more fully work their way through the system.”

Claire Fan, Economist, RBC Economics, said growth has been slowing on balance, and the central bank looks increasingly likely to be nearing a pause in its current hiking cycle.

“The effect of the 400 bp Bank of Canada interest rate hikes in 2022 has yet to be felt fully by households and businesses. More will face higher debt costs and that will lower spending more broadly and significantly, tipping the Canadian economy into a recession somewhere over the first quarter of 2023. Labour markets conditions that are currently overheating should see some temporary reprieve over the next quarters as well. Inflation readings should continue to dial lower but not fast enough for the central bank to ease off the monetary policy brakes quickly. We expect the overnight rate will stay at currently restrictive level throughout 2023.”

(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)