Canadian Economy Contracts by 1.1% in Q3 Amidst Weak Business and Consumer Spending

Canadian economy contracts 1.1% in Q3 2023, facing sluggish spending and decreased exports, but offset by government spending and housing investment. housing investment.

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The Canadian economy faced a contraction of 1.1% in the third quarter of 2023, as reported by Statistics Canada. This decline can be attributed to several factors, including sluggish business and consumer spending, as well as a decrease in exports. However, there were some mitigating factors, such as increased government spending and housing investment, which partially offset the negative impact.

Despite the contraction, it is worth noting that the revised reading for real gross domestic product (GDP) in the second quarter showed growth of 1.4% on an annualized basis. Economists analyzing the data emphasize that while the decline in the third quarter is offset by growth in the previous quarter, the overall trend indicates that the Canadian economy is struggling to achieve sustained growth and is treading carefully to avoid slipping into a recession.

BMO chief economist Douglas Porter expressed this sentiment, stating that the Canadian economy is "struggling to grow, yet managing to just keep its head above recession waters." Various factors contribute to this challenging situation, including Bank of Canada interest rate hikes, which have increased borrowing costs for both consumers and businesses. As a result, consumer spending has remained flat for two consecutive quarters, with households prioritizing savings as disposable income surpasses nominal spending. Additionally, business capital investment experienced a decline of 2% in the third quarter. Economists widely anticipate that the Bank of Canada will maintain its current interest rate stance in light of slowing inflation and a weakening economy.