Economic commentary provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Today’s release of the monthly GDP confirms that the momentum in the Canadian economy remains weak. However, with the preliminary estimate for November suggesting activity rose 0.1% m-o-m, growth in the fourth quarter is estimated at +0.5% q-o-q ar., meaning that the probability of a second quarter of contraction has declined.
Nevertheless, the details offer little comfort. The strength in retail trade activity is expected to be temporary, while the weakness in the manufacturing wholesales trade sectors seems to suggest weak business investment activity, nationally and globally. Similarly, the sharp decline in office real estate could also be a sign of weakness in the business sector, in addition to the impact of higher interest rates.
It is clear that the economic momentum is weak and that there are little signs that growth will improve. 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. As such, we should expect growth to continue 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).
October’s GDP number is unlikely to impact the Bank of Canada’s thinking, despite growth expected to be slightly weaker than their expectations in Q4. Recent comments suggest that the central bank believes rates are restrictive enough. In our view, the attention is now 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%. This is unlikely to happen until the Spring.
For Alberta, the details available in the report suggest that economic activity likely underperformed the rest of the country in October due to a sharp decline in extraction activity in the non-conventional oil sector. Nevertheless, high energy prices remain a tailwind to the Alberta economy this year, but not as much as in the past (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 was flat in October (+0.9% y-o-y), weaker than expectations. This is the third consecutive month where economic activity has barely changed. The details show that half 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 0.1% m-o-m in November. This suggests that growth in the fourth quarter of 2023 should be around +0.5% q-o-q ar., reducing the risk of a second consecutive decline in economic activity.
The goods-producing side of the economy was flat m-o-m in October. Declines in the manufacturing sector (-0.6% m-o-m) and construction (-0.1% m-o-m), were fully reversed by gains in economic activity in agriculture (+1.1% m-o-m) and natural resource extraction (+1.0% m-o-m).
The services-producing side of the economy rose 0.1% in October. Strong gains in retail (+1.2% m-o-m) and accommodation and food services (+0.9% m-o-m) in addition to continued steady growth in health care (+0.3% m-o-m), education (+0.2% m-o-m) and public administration (+0.2% m-o-m) were the main sources of growth in the sector. On the flip side, lower activity in real estate (-0.2% m-o-m), due to a 6.8% m-o-m decline in office real estate, was the main drag. There were also declines in wholesale trade (+0.7% m-o-m), transportation and warehousing (-0.2% m-o-m), due to the St. Lawrence Seaway strike, and in professional, scientific and technical services (-0.2% m-o-m).
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. While overall activity in natural resource extraction. However, activity in the pipeline industry, especially natural gas, and the agricultural sector increased meaningfully. Overall, this means that the province’s economy likely underperformed the rest of the country in October.
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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.