Canadian GDP up 0.7% in the 3rd quarter, partly thanks to exports

Canada posted stronger-than-expected economic growth in the third quarter, but economists have pointed out that the underlying data does not paint such a rosy picture.

The economy grew at an annualized rate of 2.9% for the July-September quarter, Statistics Canada said Tuesday. This compares to growth of 3.2% for the second quarter.

Although the overall growth rate is significantly higher than expected by forecasters, the drop in consumer spending suggests that higher interest rates are starting to affect the economy more generally. « Sometimes the headlines seem to go one way and the rest is a little different, » said CIBC’s director of economic affairs, Karyne Charbonneau. Household spending fell for the first time since the second quarter of 2021, falling 0.3%.

Overall, economic growth was led by an increase in exports, non-residential structures and business investment in their inventories. The rise in exports was fueled by increased shipments of crude oil and bitumen, albeit at lower prices. Growth in these sectors was moderated by lower housing investment and household spending.

Economists generally expect the economy to slow more significantly in the fourth quarter, in response to higher interest rates. Since March, the Bank of Canada has raised its key interest rate six times in a row, quickly bringing its key rate to 3.75%. The rate hikes were felt first in the housing market, which cooled considerably as mortgage costs rose.

Over time, economists expect these rate hikes to affect spending in more sectors of the economy.

On a quarterly basis, real GDP in the third quarter rose 0.7%, beating the federal agency’s earlier preliminary growth estimate of 0.4% growth. Monthly real GDP data show the economy grew 0.1% in September, boosted by goods-producing industries. Statistics Canada’s preliminary estimate for October suggests the economy has remained stable.

The quarterly GDP report also provides insight into the evolution of Canadian wages.

On a quarterly basis, nominal employee compensation rose 1.2%, its weakest growth since the second quarter of 2020. At the same time, the household savings rate rose to 5.1% in the second quarter. quarter to 5.7% in the third quarter. For comparison, the savings rate in the third quarter of 2019 was 2.5%. The federal agency noted that savings rates tended to be higher for people with higher incomes.

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