- The Canadian economy rebounded in January with a 0.5% increase in real GDP driven by gains across 17 of the 20 major industries, indicating a broad-based economic recovery.
- Client-facing industries such as food services and drinking places, accommodation services, and arts, entertainment, and recreation services saw increased activity in January.
- Consumer price inflation slowed from 5.9% in January to 5.2% in February, marking the largest deceleration in the headline rate since the onset of the pandemic, but food prices remain elevated.
Editor’s Notes: In this report, we have used data from the Statistics Canada website.
The Canadian economy has seen significant changes since the onset of the COVID-19 pandemic. In this article, we will discuss the current economic situation in Canada, examining the latest data and trends across various sectors.
Economy-wide output strengthens on broad-based gains
After a brief slowdown in December, the Canadian economy rebounded in January, posting a 0.5% increase in real gross domestic product (GDP). This growth was driven by gains across 17 of the 20 major industries, indicating a broad-based economic recovery. Furthermore, January’s growth marked the largest monthly increase since early 2022 when public health measures were being lifted or eased. The economy-wide output has now expanded in 17 of the last 20 months, and in January, it was 3.2% above pre-pandemic levels.
Client-facing industries see increased activity
Many client-facing industries, such as food services and drinking places, accommodation services, and arts, entertainment, and recreation services, saw increased activity in January. Sales at full- and limited-service restaurants drove food services and drinking places to post their largest increase in eight months. Similarly, accommodation services and arts, entertainment, and recreation services rebounded from moderate declines at the end of 2022.
Retail volumes see continued growth
Retail volumes grew by 1.0% in January, following a 1.3% increase at the end of 2022. The motor vehicle and parts dealers sector posted its fourth consecutive increase, as supply disruptions in the auto sector continued to ease. Higher production at automakers also bolstered factory output and export volumes in January. The retails volumes plays an important role in Canadian economy.
Residential and non-residential building construction
Residential building construction saw a 4% increase above pre-pandemic levels, marking only the second time in the last ten months that this sector has experienced growth. Meanwhile, non-residential building construction rose for the fourth time in the past six months but remained 9% below its pre-COVID benchmark. Rising interest costs continued to weigh on activity at real estate agents and brokers, which fell for the eleventh consecutive month and was over one quarter below pre-COVID levels.
The advanced estimate of real GDP points to continued growth
Statistics Canada’s advance estimate of real GDP points to a 0.3% increase in February, suggesting that the Canadian economy’s growth trajectory continues into the first quarter of 2023.
Headline inflation continues to ease
Consumer price inflation slowed from 5.9% in January to 5.2% in February, marking the largest deceleration in the headline rate since the onset of the pandemic. Base-year effects have put substantial downward pressure on headline inflation in early 2023. These base-year effects reflect the impact of large price increases in early 2022, which are falling out of the headline year-over-year price movement. However, on a month-over-month basis, consumer prices have continued to rise in early 2023, with an advance of 0.5% in January and 0.4% in February. Rising mortgage interest costs have supported price growth in these months.
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Food prices remain elevated
Food price inflation eased slightly in February but remained elevated. Grocery prices were up 10.6% in the twelve months to February, down from 11.4% in January. Meat prices increased by 6.2%, while yearly price increases for fresh fruit and fresh vegetables both remained above the ten percent mark. Prices for pasta products, measured year-over-year, were up 23.1%, while dairy prices slowed to 9.1% after four consecutive months in double-digit territory. Prices at restaurants were 7.7% higher in the twelve months to February, down from 8.0% in January.
The employment rate remains steady
The Canadian labor market added 34,500 jobs in February, following an increase of 59,300 in January. The unemployment rate remained unchanged at 6.5%, with notable employment gains in the accommodation and food services, health care and social assistance, and educational services sectors. The number of self-employed workers increased for the third consecutive month, while the number of employees remained steady.
Bank of Canada keeps policy rate on hold
On March 9, the Bank of Canada announced that it would be keeping its policy rate unchanged at 0.25%, citing ongoing uncertainty in the economic outlook. The bank also maintained its quantitative easing program and its forward guidance on interest rates, indicating that it would keep rates low until the recovery of the economy is well underway.
| Indicator | Data/Status |
|---|---|
| Real GDP | 0.5% increase in January, driven by gains across 17 of 20 major industries |
| Client-facing industries | Increased activity in food services and drinking places, accommodation services, and arts, entertainment, and recreation services |
| Retail volumes | Grew by 1.0% in January, with the motor vehicle and parts dealers sector posting its fourth consecutive increase |
| Residential construction | Saw a 4% increase above pre-pandemic levels, while non-residential construction remained 9% below its pre-COVID benchmark |
| Advance estimate of real GDP | Points to a 0.3% increase in February |
| Inflation | Consumer price inflation slowed from 5.9% in January to 5.2% in February, but food prices remain elevated |
| Employment rate | Remains unchanged at 6.5%, with notable employment gains in the accommodation and food services, health care and social assistance, and educational services sectors |
| Bank of Canada policy rate | Unchanged at 0.25%, with ongoing uncertainty in the economic outlook. |
Conclusion
Overall, the Canadian economy has shown resilience in the face of the ongoing COVID-19 pandemic. Despite ongoing supply chain disruptions and labor shortages, the economy has seen broad-based growth across various sectors, with particular strength in client-facing industries and retail. The advance estimate of real GDP points to continued growth in the first quarter of 2023, and the Bank of Canada has maintained its accommodative monetary policy stance. However, inflationary pressures remain a concern, particularly with regard to food prices, and ongoing uncertainty in the economic outlook suggests that there may be challenges ahead for the Canadian economy.
