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'Bottom not falling out of economy:' What the experts are saying about GDP


Statistics Canada reported flat GDP for the fourth quarter of 2022, surprising analysts who called for 1.6 per cent annualized growth.

Declines were reported in several sectors including inventories, housing and business investment.

“Inventories applied significant downward pressure on GDP. In the manufacturing retail, and wholesale sectors, the build of goods inventories was significantly lower, following record builds in 2022 Q3 and Q4,” said TD Economic’s James Orlando in a note on Feb. 28.

Housing investment fell 8.8 per cent in the quarter registering the “third consecutive decline after the Bank of Canada started to raise interest rates more aggressively at the beginning of 2022,” said Claire Fan, an economist at RBC Economics.


However, “a far bigger concern,” for Stephen Brown at Capital Economics, was “the 27 per cent annualized slump in machinery and equipment investment.” Overall, quarterly business investment fell 5.5 per cent.

Data showed Canadian consumers continued to pull their weight as household consumption rose two per cent in the fourth quarter, mostly due to a 14.4 per cent increase in durable goods, “with people shelling out for new trucks, vans, and sport utility vehicles,” Orlando said.

Still, Canadians exhibited some spending “restraint,” said Andrew Grantham of CIBC Economics, increasing their savings rate to six per cent in the fourth quarter from five per cent in Q3, perhaps in preparation for an expected recession.

Monthly GDP contracted 0.1 per cent in December, although the national data agency released a flash estimate suggesting month-over-month growth in January rebounded 0.3 per cent.

Brown of Capital Economics attributed the December pullback to “temporary factors” including a four per cent month-over-month drop in mining, oil and gas extraction caused by unplanned maintenance-related events.

“The latest monthly data do not suggest that the economy is in recession,” Brown said in his Feb. 28 note.

For 2022, Canadian GDP came in at 3.4 per cent, “compared with 2.1 per cent in the U.S., 3.6 per cent in the Euro Area and four per cent in Britain last year,” said Douglas Porter, chief economist at BMO, in a note on Feb. 28. The Bank of Canada had called for 2022 growth of 3.6 per cent in its latest Monetary Policy Report, released in January.

Here’s where economists think the economy is headed over the next few quarters.

Stephen Brown, Capital Economics

“The stagnation in fourth-quarter GDP, together with the downward revision to third-quarter GDP growth, leaves the economy in worse shape than the Bank of Canada expected. That is another reason to think that, even though the U.S. Fed is still hiking, the Bank will be content with leaving policy unchanged.

“Even if GDP edged down in February and March, the strong gain in January implies that first-quarter growth would still be marginally positive. Nevertheless, with the leading indicators looking weak …, we continue to see a strong risk that GDP will decline over the second and third quarters.”

Claire Fan, RBC Economics

“From a quarterly perspective, the larger January print adds upside to our Q1 call with a small increase looking more likely than the 0.5 per cent decline we’ve been expecting. But that’s not enough to alter our baseline expectation that weaker demand is yet to come. Household debt service ratio has been rising and will continue to increase into the end of 2024. That combined with moderating wage gain and rising borrowing costs will continue to drive consumer spending lower, keeping a downward pressure on inflation as the economy heads into a mild recession later in 2023.”

James Orlando, TD Economics

“Canada’s economy ended 2022 with a thud. Expectations going into this report were for another solid gain. Though we knew housing and non-residential investment were going to pull down GDP, the impact from inventories was huge. What came in as expected was the rebound in consumer spending, which posted a solid 2 per cent quarter-over-quarter gain, with spending on high-end goods leading the way. This helped final domestic demand come in right around expectations at +1 per cent quarter over quarter.

Looking forward, we are tracking an improvement in GDP for 2023 Q1. The GDP flash estimate for January is consistent with our view of a bounce back, led by an uptick in consumer spending following the most recent jobs surge. Although the Bank of Canada probably feels vindicated in its policy rate pause given today’s weak top-line print, it will still be closely watching the evolution of incoming data, which have surprised higher to start 2023.”

Douglas Porter, BMO Economics

“Today’s mostly soft report won’t be a disappointment to policymakers, as the Bank of Canada is openly attempting to take some steam out of the economy. And zero-point-zero growth is about as little steam as one could ask for, without pushing things into an outright downturn. The late-year softness was compounded by weak oil and auto production, and growth looks to have firmed a touch at the start of 2023. Growth will need to hold below potential (about two per cent) to dampen excess demand and reduce inflation pressures. Today’s result simply reaffirms that the BoC will be on hold at next week’s decision, and if growth remains below potential — as we expect — they will likely stay on the sidelines. The key for the Bank will be whether the bounce in January GDP was the start of a trend, or a one-off weather-related fluke; we suspect it’s mostly the latter.”

Andrew Grantham, CIBC Economics

“The stall in GDP during the final quarter of last year was a surprise, but a rebound in domestic demand led by consumer spending shows that the bottom is certainly not falling out of the economy. The advance estimate for January points to a rebound in growth during the first quarter, albeit not to the sort of pace that will add to inflationary pressure or concern the Bank of Canada. Indeed, Q4 and the early tracking for Q1 combined suggest that the economy is now growing below its long-run potential, which should help to further ease inflationary pressures.

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