By Robb M. Stewart
OTTAWA--Canada's economy showed signs of resilience toward the end of 2022, though growth continued to decelerate and economists still see the risk of a slight contraction early this year.
The country again eked out modest growth in November and estimates suggest the economy flattened in the final month of the year, pointing to fourth-quarter growth slightly ahead of the Bank of Canada's forecast but in keeping with its view that growth cooled into the end of the year.
Gross domestic product, a broad measure of goods and services produced across the economy, edged up 0.1% from the month before to 2.077 trillion Canadian dollars, the equivalent of $1.552 trillion, Statistics Canada said Tuesday.
November's advance matched the 0.1% gain in October, and was in line with the data agency's advance estimate and the consensus expectation of economists.
Early estimates point to an economy essentially unchanged in December, which suggests fourth-quarter GDP growth slowed to 1.6% on an annualized basis from 2.9% in the third quarter, Statistics Canada said. Last week, the central bank raised its GDP growth projection for the fourth quarter to 1.3% from a 0.5% forecast in October, and said it continues to expect the economy will stall through the middle of this year, with projected average GDP growth of roughly 1% in 2023 from about 3.5% in 2022.
"While the Canadian economy hasn't cooled as quickly as we, and others, previously expected given the rapid rise in interest rates, there are growing signs of fragility," said Andrew Grantham, senior economist at CIBC Capital Markets.
Mr. Grantham said a recovery in many services has slowed even as activity remains well below pre-pandemic levels, and a dip in restaurant activity could be an early sign of consumers changing their behavior in the face of inflationary pressures and rising interest rates, which he says hints at the economy stalling and possibly even contracting modestly in the first quarter.
Recent economic growth has been stronger than the Bank of Canada was anticipating, with excess demand and a labor market that remains tight, though the central bank has noted growing evidence of its monetary policy is slowing activity, particularly household spending. It has said the chance of a couple of quarters with slightly negative growth this year is roughly the same as that of a couple of quarters with slightly positive growth.
Last week, the bank said it would pause its tightening cycle after lifting its benchmark monetary policy rate for an eighth time in a row to a 15-year high.
"The raft of GDP news for late 2022 suggests that the economy is still gradually churning forward," said Douglas Porter, chief economist at Bank of Montreal. "But the overriding message is that the economy is just managing to keep its head above water, which squarely fits with the BoC's view."
Mr. Porter said estimated growth of 1.6% for the final quarter of last year, while slightly stronger than he expected, is a bit below the economy's 10-year trend of 1.8% growth and below last year's population growth. "So it's sluggish," he said.
For November, Statistics Canada's data showed retail activity was down for the month and residential construction continued to weaken, but the end to Covid-19-related border restrictions in October again supported transportation.
The transportation and warehousing sector logged a third consecutive monthly gain in November, led by a sharp rise in air transport, which saw its highest level of activity since January 2020 pre-pandemic levels.
After declining for three months in a row, the finance and insurance sector saw modest growth in November. Construction activity contracted and retail trade also weakened for the month, with food and beverage stores falling to the lowest level since April 2018, the agency said. Accommodation and food-services activity also contracted in November, following three straight monthly increases.
Although its estimates will be updated when the official data are released in late February, the agency said information for December indicates increases in the retail, utilities and public sectors were offset by declines in wholesale, finance and insurance, as well as in mining, quarrying, and oil and gas extraction.
Write to Robb M. Stewart at robb.stewart@wsj.com
(END) Dow Jones Newswires
01-31-23 1105ET
