Statistics Canada’s recent disclosure that the nation’s GDP remained static in August has stirred worries about the Canadian economy ‘s future trajectory. The August GDP figure was pegged at $2.082 trillion, a marginal increase over the $2.081 trillion recorded in July.
This flat growth not only disappoints market expectations of a modest 0.1% month-over-month increase but also belies the agency’s own preliminary predictions. Meanwhile, a modest expansion in the service sector was overshadowed by a contraction in the goods-producing industries, further complicating the economic picture.
Canadian Economy Stagnation and Recession Risk Assessment in 2023
The stagnation in August isn’t an isolated occurrence; it follows a period of deceleration that began in June. The numbers from June onward suggest a disconcerting trend: the Canadian economy has hardly shown any meaningful growth since May. While data for September is still pending, early signs point to a continuation of this stagnating pattern.
Stephen Brown, Deputy Chief North America Economist at Capital Economics, has surmised that the Canadian economy likely experienced a 0.1% contraction in the third quarter. Coupled with a 0.2% pullback in the second quarter, Canada could be inching toward a technical recession, defined as two successive quarters of negative growth. Despite this, Brown and other analysts assert that a third-quarter rebound is not entirely off the table.
However, given the Bank of Canada’s recent Business Outlook Survey and October’s CFIB Business Barometer, the prospect of a mild recession appears increasingly likely. This new data could be the final nudge for the Bank of Canada to halt its interest rate increases, something financial experts have already been suggesting.
What are economists saying?
Market analysts, including Benjamin Reitzes of BMO Economics, have amplified the call for the Bank of Canada to cease rate hikes, citing the economy’s sluggish performance as an unmistakable sign to pause.
Andrew Grantham from CIBC Economics warned that the economy is perilously close to entering a recession. His observations indicate a significant deviation from the Bank of Canada’s Monetary Policy Report, which had forecasted a 0.8% annual growth rate for Q3.
Marc Ercolao of TD Economics believes that the central bank’s rate hikes have been effective in quelling excess demand. Yet, he advises continued vigilance given lingering concerns over inflation rates.
Currency analyst Jay Zhao-Murray at Monex Canada predicts a more severe recession to begin around 2024. This, he believes, would pressure the Bank of Canada to initiate rate cuts ahead of the U.S. Federal Reserve. He also mentions the risk of stagflation—a condition of low growth, high inflation, and high unemployment—as a growing concern.
While the Canadian economy’s future remains uncertain, one thing is clear: the latest numbers warrant close attention, both from policymakers and the financial markets.
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