Economic insight provided by Alberta Central Chief Economist Charles St-Arnaud.
Bottom line
Today’s release of the GDP for November confirms that growth has come to a crawl at the end of 2022, with growth at its weakest since 2021Q2 when restrictions to slow the spread of COVID were in effect. The report shows that rate-sensitive sectors and those depending on consumers’ discretionary spending, like retail, and food and accommodation, are feeling the impact of rising interest rates and reduced purchasing power.
We expect growth in Canada to likely contract in the first half of 2023 as the sharp increases in interest rates continue to impact the broad economy. As such, the “Great consumer squeeze,” an erosion of purchasing power and rising debt-service cost, will reduce household spending meaningfully and will likely be a source of an economic contraction this year.
The Bank of Canada signaled last week that it expects to keep its policy rate unchanged for some time to better assess the impact of previous rate hikes on the economy and inflation. However, it stands ready to hike again if inflation does not moderate, as expected
For Alberta, the details available in the report suggest that economic activity underperformed the rest of the country in November due to a decline in activity in the oil and gas sector. High energy prices have been 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). This will mean that Alberta’s slowdown in economic could be less pronounced than in the rest of Canada.
The monthly GDP inched higher by 0.1% m-o-m in November (+2.8% y-o-y). The details show that 14 out of 20 industrial sectors posted gains on the month. Despite the overall economy being 3.1 percentage points above its pre-pandemic level, 7 out of 20 industrial sectors still have economic activity below their pre-pandemic levels, namely utilities, manufacturing, 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 for December was essentially flat. This suggests that growth in the fourth quarter of 2022 will likely be around 1.6% q-o-q ar. This would be the weakest quarterly growth since 2021Q2 when restrictions were put in place to slow the spread of COVID.
The goods-producing side of the economy contracted by 0.1% m-o-m in November. This was mainly due to a drop in activity in construction (-0.7% m-o-m), manufacturing (-0.1% m-o-m), and agriculture (-0.1% m-o-m). Those declines were partly offset by increases in utilities (+0.7% m-o-m) and natural resources extraction (-0.2% m-o-m).
The services-producing side of the economy rose 0.2% in November. The increase in activity was led by transportation and warehousing (+1.0% m-o-m), finance and insurance (+0.5% m-o-m), and public administration (+0.5% m-o-m). A decline in retail trade (-0.6% m-o-m) and accommodation and food services (-1.4% m-o-m) offset some of the rises in other sectors.
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. The level of activity in the oil and gas sector, especially oil sands, support activities and petroleum products wholesalers, decreased sharply on the month. However, this decline may have been partly offset by a rise in support activities for mining, oil and gas. A decline in crop production as likely acted as a drag on growth. An increase in pipeline activity, especially gas pipeline, due to higher activity in gas pipelines, may have provided some support. Overall, this means that the province’s economy likely underperformed the rest of the country in November.
Independent Opinion
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