Economic outlook

Canadian GDP recovers, yet economic growth remains muted

Canada’s economy switched from contraction to expansion in the final quarter of 2023, with GDP increasing by 0.2 percent on an annualized basis between Q3 and Q4. However, the progress is far from universal, and the outlook remains finely balanced.

Of firms approached in the March 2024 BoC Business Outlook Survey, 19.0 percent reported positive sentiment. Finance constraints and weaker investment were cited as major factors controlling demand, with the BoC’s policy interest rate remaining fixed at 5.00 percent. However, confidence has improved, albeit marginally. Business sentiment was up 10.0 percentage points compared to December 2023, aided by softening inflation and easing supply chain constraints.

The Consumer Price Index dipped to 2.8 percent on the year in February 2024, the lowest rate of inflation in eight months. Yet the easing of inflation may not be enough to prompt the BoC to start cutting interest rates, with more time needed to keep inflation down. Meanwhile the impact of elevated interest rates is starting to be felt more acutely in Canada’s labour market.

Source: Statistics Canada

The unemployment rate is steadily increasing, rising to 5.8 percent in February 2024 amidst uncertain market conditions. Vacancy rates in Canada are reducing and wage growth is stabilizing, with average weekly earnings growing by 3.9 percent on the year in January 2024. While encouraging for employers, for whom labour is more affordable, weaker wage growth is worrying for employees as the cost of living continues to rise.

Firms are also feeling the pinch of higher refinancing costs, with business insolvencies rising by 58.1 percent in the 12 months to February 2024. The number of construction insolvencies was especially high during the period, growing by 43.1 percent.

Nevertheless, the overall economic environment is stable, if subdued. Forecasts for 2024 suggest GDP will increase by 0.9 percent over the year. While slower than 2023, this rate of growth is higher than that expected in many developed markets.

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