Yes, we have no recession

Canada's GDP data for the final quarter of 2023 were released this morning, but you'd need to search the media pretty carefully to find out about it. That can only mean one thing, right? If you scroll WAAAY down into the CBC website, you will eventually find an article with this headline: "Canadian economy not in recession, but 2023 was one of its weakest recent years".  You can almost hear the editor yelling at the reporter when the data appeared -- "for Pete's sake find me something negative to say about this!" Luckily for the reporter, he/she did not have to look any further than the second paragraph of the data release to come up with that headline. 

If we look at that data release, we find that the economy grew 0.2 percent in Q4/2023, or just under 1.0 percent at an annualized rate, more than fully reversing the decline of 0.1 percent (0.5 percent annualized) reported in the prior quarter. Growth in Q4 largely reflected strength in external trade, with household spending also higher.  However, this was offset by weakness in investment, both business and housing, which is scarcely surprising with interest rates still at their highs for the current cycle.

In no way can this be considered a strong report, but yet again the economy has defied the strenuous efforts of the media to talk it into a recession. However, even as aggregate GDP continues to inch ahead, there is a story to be told about per capita GDP.  Canada's population expanded more than 2 percent in 2023 on the back of record-high immigration, so GDP per person is already declining.  With little likelihood of either significantly faster GDP growth or significantly lower population growth any time soon, that negative trend is set to continue. This is sure to be a major issue in the Federal election that is now probably no more than a year away.

As usual, StatsCan also released data on monthly GDP by industry alongside the quarterly numbers. Real GDP was unchanged in December from the previous month, with declines in goods-producing sectors offset by gains in services output. Two special factors may have pushed the aggregate figure for December lower: a public sector strike in Quebec, and unseasonably mild weather across much of the country, which reduced utilities output.  Interestingly, StatsCan's preliminary estimate for January suggests a healthy 0.4 percent gain in real GDP for the month, led by a strong gain in services output.

With today's report, the Bank of Canada now has all the key economic information it will use in making its next rate decision on March 6.  Even though inflation edged into the top half of the Bank's target range in January, there has been almost no market speculation about a rate cut at this session.  The GDP data do not change that in any way: with the economy still moving ahead, the Bank can afford to wait a little longer, in order to be sure that inflation can be brought sustainably back to its 2 percent goal.