Canadian Quarterly GDP (Q4 2022)

James Orlando, CFA, Director & Senior Economist | 416-413-3180 

Date Published: February 28, 2023

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Canada's GDP flatlines to close out 2022 

  • The Canadian economy expanded by 0% quarter/quarter annualized (q/q) in Q4 2022. Meanwhile, the flash estimate for January showed a 0.3% month-on-month increase.
  • Inventories applied significant downward pressure on GDP. In the manufacturing retail, and wholesale sectors, the build of goods inventories was significantly lower, following record builds in 2022 Q3 and Q4. 
  • On business investment, there was a 27.6% q/q decline in machinery and equipment. The drop was due to "lower spending on computers and computer peripheral equipment, industrial machinery and equipment, and aircraft and other transportation equipment."
  • Housing investment dropped again in Q4, declining by 8.8% q/q. StatCan noted that this was "widespread across new construction (-1.4%), renovations (-2.6%), and ownership transfer costs (-4.0%)."
  • On the positive side, consumer spending increased by 2.0% q/q. This was led by spending on durables (+14.4%), with people shelling out for "new trucks, vans, and sport utility vehicles (+10.3%)." Spending on services slowed to 1.3% q/q, down from +4.5% in Q3. 
  • Net exports boosted growth. While export growth was only 0.8% q/q, imports fell 12% q/q. This import decline was led by "pharmaceutical and medicinal products, computers and computer peripherals, and electronic and electrical parts."
  • Nominal GDP contracted by 2.7% q/q annualized and fell modestly for 2 straight quarters following double-digit gains in the first half of 2022. 

Key Implications

  • Canada's economy ended 2022 with a thud. Expectations going into this report were for another solid gain. Though we knew housing and non-residential investment were going to pull down GDP, the impact from inventories was huge. What came in as expected was the rebound in consumer spending, which posted a solid 2% q/q gain, with spending on high end goods leading the way. This helped final domestic demand come in right around expectations at +1% q/q.
  • Looking forward, we are tracking an improvement in GDP for 2023 Q1. The GDP flash estimate for January is consistent with our view of a bounce back, led by an uptick in consumer spending following the most recent jobs surge. Although the BoC probably feels vindicated in its policy rate pause given today's weak topline print, it will still be closely watching the evolution of incoming data, which have surprised higher to start 2023.