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Canada GDP Q3 2023

Canada: GDP records sharpest contraction since Q2 2021 in Q3

The economy deteriorated in Q3, with GDP contracting 1.1% in seasonally-adjusted annualized terms (SAAR) (Q2: +1.4% SAAR). Q3’s reading marked the worst reading since Q2 2021, and was notably below the flash estimate of a roughly flat reading. Lower oil exports and softer inventory accumulation drove the decline. That said, Q2’s GDP data was revised up by a similar amount; as such, looking at Q2 and Q3 together the economy was still largely stable. On an annual basis, economic growth lost momentum, cooling to 0.5% in Q3, following the previous quarter’s 1.2% increase. Q3’s reading marked the softest growth since Q1 2021.

Looking at expenditure components, private consumption grew 0.1% SAAR in Q3, following a 0.1% contraction in Q2. Public consumption sped up to a 7.3% expansion in Q3 (Q2: +1.4% SAAR). Meanwhile, fixed investment contracted 1.3% in Q3 (Q2: +3.6% SAAR), influenced by the near-completion of the Kitimat liquified natural gas project. Exports of goods and services plunged at the steepest rate in over two years, contracting 5.1% in the third quarter (Q2: +5.1% SAAR). In addition, imports of goods and services deteriorated 0.6% in Q3 (Q2: +4.4% SAAR).

Flash data points to a 0.2% month-on-month rise in GDP in October, thanks to increases in mining, quarrying, and oil and gas extraction, retail trade, and construction. That said, our Consensus is still for the economy to broadly flatline over Q4 as a whole, weighed on by soft consumer spending and investment amid high interest rates.

On the recent reading, Goldman Sachs analysts said:

“[The Q3] report—which incorporated revisions to several data sources, a re-referencing of volume and price estimates, and an updated product classification for international trade—broadly confirms that the Canadian economy essentially stagnated over the middle quarters of 2023.[…] Real household consumption growth was essentially flat for the second quarter in a row.”

On monetary policy implications, Desjardins’ Randall Bartlett said:

“Along with a weakening labour market and the slowing pace of underlying inflation, [the Q3] GDP data should keep the Bank on the sidelines for the foreseeable future. Indeed, we believe the next move by the Bank will be a cut in Q2 2024.”

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