The Canadian economy grew slightly in November and appeared to have stagnated again at the end of the year as higher interest rates began to dampen spending.
Statistics Canada’s preliminary estimate of real gross domestic product (GDP) in December points to a stable economy, which would suggest the economy grew at an annualized rate of 1.6% in the fourth quarter of last year.
By comparison, the economy grew at an annualized rate of 2.9% in the third quarter.
GDP growth stood at 0.1% in November, the federal agency said on Tuesday.
This economic growth was notably stimulated by the public sector, that of transportation and warehousing, as well as that of finance and insurance.
The Statistics Canada report noted that the removal of travel restrictions related to COVID-19 spurred growth in the transportation and warehousing group.
At the same time, the construction, retail trade, and accommodation and food services sectors contracted.
“We’re starting to see more signs of cracks in the consumer spending environment,” observed Nathan Janzen, Royal Bank’s deputy chief economist, noting declines in retail trade and accommodation and food services.
The housing market was the first to feel the impact of interest rate hikes, leading to a slowdown in housing-related sectors.
This slowdown is expected to spread to other sectors of the economy as rising borrowing costs force consumers and businesses to cut spending.
The Bank of Canada raised its key interest rate for the eighth consecutive time last week and said it would now take a break — while keeping the door open for further rate hikes if inflation were not still not under control.
Statistics Canada estimates that the economy grew by 3.8% in 2022.
Many economists predict a mild recession in 2023. However, the economy is expected to recover in the second half of the year.
“Much of the impact of the Bank of Canada’s interest rate hikes to date has not yet fully passed through to household purchasing power,” Janzen said.
“We therefore still expect GDP growth to continue to decelerate and enter negative territory in the first half of this year. »