The Quebec economy ended 2022 on a strong note, pushing recession scenarios to this year.
Quebec’s real GDP increased by 0.5% in the fourth quarter of 2022, reversing the 0.3% decline observed in the third. For the year 2022, real GDP will show growth of 2.8%, summarizes the Institut de la statistique du Québec. In nominal terms, the increase in GDP reached 10% last year.
On an annualized quarterly basis, the rebound in the last quarter amounts to 1.9%. For its part, the -1.9% decline in the third quarter of 2022 has been revised to -1.3%. These results are markedly different [de ceux] of Canada, which instead recorded growth of 2.3% in the third quarter followed by stagnation in the fourth quarter,” underlines Hélène Bégin, Senior Economist at Desjardins Group.
The change in direction of Quebec’s real GDP can be explained by “an impressive recovery of 7.3% in household consumption expenditure and an acceleration of 11.1% in public administration investment. This strength led to a 2.4% rebound in final domestic demand after the 0.8% decline recorded in the third quarter. Consumer spending, which was much stronger than expected, was inflated by the checks for $400 or $600 distributed at the beginning of December by the Quebec government, adds the economist.
Consumers
National Bank economist Daren King also points to the good performance of Quebec consumers, which can be explained by the solidity of the labor market and the high household savings rate. “Household incomes, which have been boosted by financial support from the provincial government as well as strong employment and wage growth, have even led to a rise in the savings rate from 9.1% to 13.9 % from the third to the fourth quarter of 2022.”
Hélène Bégin maintains that this rise should be temporary, which does not prevent the level from proving to be significantly higher than that of 7.5% before the pandemic.
On the residential side, however, the market correction continued to accelerate. “The residential sector suffered a third consecutive fall of around 20%. All components contributed to this decline in the fourth quarter of 2022: new construction (-27.2%), renovation (-6.3%) and ownership transfer costs (-36.9%) which are weighed down by both the fall in sales and prices, ”lists Mme Begin.
For their part, non-residential business investment plunged 11.7% in the last quarter of 2022 after starting a slight decline the previous quarter.
“The recession that seemed to have started in the third quarter of 2022 is swept under the rug, at least for now. Many households and several businesses seem to be out of breath due to the interest rates which remain at a high level. Quebec, like Canada, will find it difficult to escape the recession this year,” believes Hélène Bégin.
Daren King is less certain. For 2023, growth in Quebec should slow under the amplification of the impact of the rise in interest rates. “Despite everything, we believe that a recession is still avoidable in Quebec, even if inflation and rising interest rates are hitting households and businesses hard. According to him, the financial situation of Quebec consumers compares favorably to that of Canada as a whole, with a savings rate that remains high and a lower level of indebtedness.
The recession that seemed to have started in the third quarter of 2022 is swept under the rug, at least for now.