Sep 29, 2022
Canadian economy sputters into lower gear as rising interest rates bite
We're going to see recessions globally: Economist
Canadian economic activity came in a bit stronger than expected in July, but remained weak through the summer in a clear sign growth has begun to sharply slow down.
Gross domestic product increased in July by 0.1 per cent, beating estimates for a 0.1 per cent drop, Statistics Canada reported Thursday in Ottawa. Preliminary data show GDP was unchanged in August.
Even with the surprise upside in July, the data are consistent with an economy gearing down from a strong start to the year, as a reopening boom loses steam. Since April, growth has averaged just 0.1 per cent on a monthly basis.
The weakness shows the extent to which Canada’s resource-heavy economy -- which had benefitted from the recent boom in energy prices -- remains vulnerable to global economic headwinds and higher borrowing costs that threaten to stall expansions in most major advanced economies.
While the slowdown won’t be enough to stop the Bank of Canada from delivering another interest rate hike next month, policymakers will be closely monitoring the extent of softness in the economy to see how high they need to go to rein in inflation to the 2 per cent target.
JOB VACANCIES FALL
Governor Tiff Macklem has already increased the Bank of Canada’s overnight interest rate by 3 percentage points since March, and is expected to continue hiking through the rest of this year. Markets are pricing another 50 basis-point increase at the central bank’s next policy decision on Oct. 26.
The Canadian economy grew 3.1 per cent in the first quarter and 3.3 per cent in the following three months. Economists anticipate Canada’s growth rate will fall to 1 per cent annualized in both the third and fourth quarters of this year.
In July, the manufacturing and construction sectors contracted, wholesale trade pulled back, retail activity shrank, and higher inflation and interest rates continued to slow real estate activities.
In a separate report on Thursday, Statistics Canada said job vacancies also declined in July by 56,400, or 5.5 per cent -- another sign of a slowdown. Total vacancies, however, remain elevated at just under 1 million.