Canada Averts Recession With Meagre Growth in Q4, Consumers and Businesses Pinched
The Canadian economy is nearing a soft landing as it resumed growth in the final months of 2023, allowing the country to avoid a recession. Real gross domestic product rose at an annualized pace of 1% in the fourth quarter, outpacing analyst estimates of 0.8%. The economy rebounded from a 0.5-%slide in the July-to-September period, avoiding two consecutive quarters of decline. In a preliminary estimate, real GDP jumped 0.4% in January, helped by the end of public-sector strikes in Quebec.
The Bank of Canada implemented a series of interest-rate hikes to curb demand and bring inflation under control. Canada’s economic performance looks weaker after accounting for the strongest population growth in decades, resulting in a decline in per-capita output. However, in aggregate, the economy is managing to eke out growth, boosting the odds that central bankers will pull off a rare soft landing – bringing inflation to heel without a significant rise in unemployment.
Canada seems to be getting a big boost from a strong U.S. economy. Exports of goods and services rose at an annualized pace of 5.6% in the fourth quarter, driven by exports of crude oil and bitumen. Consumer spending rose at a 1-percent-annualized rate, although per-capita consumption fell for the third consecutive quarter.
The Bank of Canada’s fourth quarter report showed a weakening domestic economy, with real business investment falling for the sixth time over the past seven quarters and businesses slowing inventories accumulation, which slowed growth. Final domestic demand fell at an annualized rate of 0.7%, indicating economic conditions are frail in Canada and that overall numbers are being supported by a resilient U.S. economy. The growth in the fourth quarter did not come from within Canada’s borders and is particularly uninspiring given population growth at the end of last year.
Private-sector economists expect the Bank of Canada to begin lowering its benchmark interest rate in June, although some investors believe it may happen in April. Bank of Canada Governor Tiff Macklem is hesitant to lower rates too early, as looser monetary policy could accelerate consumer prices.
Source: The Star
Source: Financial Post
Source: Globe and Mail
U.S. Consumer Spending Fuels Strong Fourth-Quarter GDP Growth
The U.S. economy grew solidly in the fourth quarter, largely due to robust consumer spending, according to the Commerce Department report. The report indicated a stronger growth profile, with improvements in consumer spending, state and local government investment, residential and business outlays. Despite a weak start due to bad weather, the outlook for growth early this year is positive, with a weather-related rebound in February and a recent surge in tax refunds expected to boost retail sales.
Gross domestic product increased at a 3.2% annualized rate last quarter, revised slightly down from the previously reported 3.3% pace. The modest downward revision reflected a downgrade to private inventory investment, which was now estimated to have increased at a $66.3-billion rate instead of the previously reported $82.7-billion pace.
The economy grew at a 4.9% pace in the July-September quarter, expanding 2.5% in 2023, an acceleration from 1.9% in 2022, and above the Federal Reserve’s non-inflationary growth rate of 1.8%. Consumer spending, which accounts for over two-thirds of U.S. economic activity, increased at a 3.0% rate, while domestic demand was stronger than initially thought. Inflation was mild last quarter, with the personal consumption expenditures (PCE) price index excluding volatile food and energy components rising at a 2.1% pace.
PCE services inflation, excluding energy and housing, increased at a 2.7% rate, revised up from the previously estimated 2.6% pace. Policymakers are monitoring this super core inflation measure to assess progress in their fight against inflation. Financial markets expect the Fed to start cutting interest rates in June, a bet that has been pushed back from May.
Since March 2022, the U.S. central bank has raised its policy rate by 525 basis points, to the current 5.25% to 5.50% range. Growth in business investment raised last quarter to 2.4%, driven by upgrades to spending on non-residential structures like factories. However, business investment in equipment was revised down to show it contracting at a 1.7% pace instead of rising at 1.1%. Business spending on equipment appears to have remained weak at the start of the first quarter, with shipments of non-defence capital goods falling by the most in more than three years in January. Economists are not forecasting a recession this year.
Source: Globe and Mail
