Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Today’s release of the monthly GDP shows that economic momentum picked up at the end of 2023. As a result, with the preliminary estimate for December suggesting activity rose 0.3% m-o-m, growth in the fourth quarter is estimated at +1.2% q-o-q ar. Moreover, even if economic activity was to be flat for the first three months of 2024, growth in the first quarter could reach 1.1% q-o-q ar. This would be much stronger than what the Bank of Canada’s expectations +0.7% q-o-q ar. for Q4 and +0.2% q-o-q ar. for Q1 in the January Monetary Policy Report.
The big question is how sustainable the pick-up in economic activity seen in late 2023 will be and whether the momentum will continue in early 2024. The details offer some comfort, especially improved activity in manufacturing and natural resources extraction, while the preliminary estimate suggests an improvement in retail sales. In addition, the resolution of the teacher’s strike in Quebec, means that the drag from this sector should abate in January. Nevertheless, weakness in finance and insurance, and in real estate suggests that higher interest rates continue to be a drag on the economy.
As we have written in the past (see What happened to the recession? The role of the policy stance and demographic), the full impact of the rise in interest rate is likely to be felt in early 2024, meaning that the current improved momentum in economic activity could prove temporary. As such, we should expect growth to weaken in the coming months. Whether the Canadian economy experiences a soft landing or a hard landing will depend on the labour market, given the amount of household debt (see (see Will it be a hard landing or a soft landing? The labour market will decide).
November’s GDP number is unlikely to impact the Bank of Canada’s thinking, despite growth expected to be stronger than their expectations in Q4 and Q1. In our view, the attention is on the timing for a rate cut and we think the BoC is unlikely to contemplate rate cuts until inflation has been brought sustainably below 3%, something unlikely to happen until the Spring. However, continued resilience in the economy could delay the timing of a cut.
For Alberta, the details available in the report suggest that economic activity likely outperformed the rest of the country in November due to strong activity in non-conventional oil extraction and support activity, and in agriculture. Relatively high energy prices remain a tailwind to the Alberta economy this year, but not as much as in the past decade (see Where’s the boom? How the impact of oil on Alberta may have permanently weakened). Moreover, continued strong population growth in the province continues to push economic activity higher.
The monthly GDP increased 0.2% in November (+0.9% y-o-y), stronger than expectations, ending a streak of three consecutive months where economic activity had barely changed. The details show that 13 of 20 industrial sectors posted gains on the month. Despite the overall economy being 4.2 percentage points above its pre-pandemic level, 7 out of 20 industrial sectors still have economic activity below their pre-pandemic levels, namely agriculture, utilities, transportation and warehousing, management of companies, administration and support services, arts, entertainment and recreation, and accommodation and food services.
Statistics Canada’s preliminary estimate suggests GDP increased by 0.3% m-o-m in December. This suggests that growth in the fourth quarter of 2023 should be around +1.2% q-o-q ar. Moreover, with the strength of growth at the end of 2023, growth in 2024Q1 would be 1.1% q-o-q ar. even if economic activity was to be flat. This reduces the risk of having two consecutive contractions in economic activity.
The goods-producing side of the economy was rose 0.6% m-o-m in November. Almost every sector saw higher activity, except for construction (-0.2%). Manufacturing (+0.9% m-o-m), agriculture (+2.4% m-o-m), natural resources extraction (+0.3%), utilities (+1.4% m-o-m) increased on the month.
The services-producing side of the economy rose 0.1% in November. Strong gains in transportation and warehousing (+0.8% m-o-m), wholesale trade (+0.7% m-o-m), accommodation and food services (+0.5% m-o-m), arts, entertainment and recreation (+0.4% m-o-m) were only partly offset by declines in education (-0.3% m-o-m), finance and insurance (-0.1% m-o-m), and retail tradfe (-0.1% m-o-m). Labour disputes affected economic activity, with the teachers’ strike in Quebec responsible for the decline in the education sector, while the end of the Screen Actors Guild – American Federation of Television and Radio Artists led to the rebound in arts and entertainment.
For Alberta, there is no specific data in the report. However, we can make an assessment based on activity in some key industries specific to Alberta. Strong gains in non-conventional oil extraction, support activities for mining, oil and gas, and agriculture suggest that economic activity in the province likely outperformed the rest of the country in November.
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Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any organization or person in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication.