Ottawa (Feb 29) – Real gross domestic product (GDP) edged up 0.2% in the fourth quarter of 2023 allowing Canada to narrowly avoid falling into a recession.
Statistics Canada said that higher exports and reduced imports fuelled GDP growth, but this was moderated by a decline in business investment.
On an annual basis, real GDP and final domestic demand rose for the third consecutive year since the COVID-19 pandemic-induced contraction in 2020. However, outside of 2020, real GDP in 2023 rose at its slowest pace since 2016, according to the national statistical agency.
For the year 2023, exports of goods and services rose 5.7%, outpacing the 1.0% increase in total imports. The stronger export growth was led by increased exports of passenger cars and light trucks as well as travel services. Meanwhile, import growth was driven by increases in travel services and passenger cars and light trucks due to strong Canadian demand.
Household spending increased 0.2% in the fourth quarter, after edging up 0.1% in the third quarter. The increase was led by higher spending on new trucks, vans and utility vehicles as supply chain issues continued to ease and back orders were fulfilled. Overall growth was dampened by a decline in expenditures by Canadians abroad (-4.8%) and an increase in spending by non-residents in Canada (+4.4%), which is a negative contributor to household spending.
StatCan says population growth continued to outpace the rise in household spending in the fourth quarter, as per capita consumption expenditures declined for the third consecutive quarter.
Growth in household spending slowed to 1.7% in 2023 from 5.1% the previous year, boosted by increased spending on new trucks, vans and utility vehicles.
Housing investment was down 0.4% in the fourth quarter, a sixth decline in the last seven quarters. Despite increased activity in new construction (+2.2%) and renovations (+0.2%), the resale market weakened across Canada, which offset increased housing investment, as ownership transfer costs fell 7.7% in the fourth quarter. Single units and apartments led the increase in new construction, as all provinces and territories, except Prince Edward Island, saw an increase in housing starts.
On an annual basis, residential construction was down 10.2%, with declines occurring in new construction, renovations and ownership transfer costs. In nominal terms, housing investment represented 7.7% of GDP in 2023, a significant decline from the peak of nearly 10% in 2021.
Compensation of employees rose 0.8% in the fourth quarter of 2023, the slowest growth rate since the second quarter of 2020. The lower growth in the fourth quarter of 2023 reflected slower wage growth in services producing industries relative to the previous quarter, as well as declining wages in the goods-producing industries.
The household saving rate was little changed in the fourth quarter, at 6.2%, as disposable income and spending rose at nearly the same pace. Income gains were roughly equally split among compensation of employees, business income and net investment incomes. The latter benefitted from a combination of higher investment earnings and the moderating effect of interest payment pressures. The household saving rate was 5.5% in 2023, well above that observed before the pandemic.
Household property income payments, comprised of mortgage and non-mortgage interest expenses, rose 1.6% in the fourth quarter, the slowest pace since the first quarter of 2022, when the Bank of Canada’s series of policy rate increases began. Since then, household interest payments have more than doubled.
Lower income households tend to be more negatively affected by interest rate increases through property income paid, while those with variable-rate debt tend to be impacted more immediately than those with fixed-rate loans. By contrast, in the fourth quarter, property income received by households, which includes deposit interest and other investment income, was up 4.3% from the third quarter and by nearly 33% since the first quarter of 2022. Higher income households tend to benefit more from interest rate increases through property income received.
