Early indicators released by Statistics Canada suggest Canada may soon enter a potential technical recession.
The preliminary data from the federal agency’s August GDP report, published on Tuesday, shows that the Canadian economy has hit a standstill. Concerningly, the initial figures for the third quarter suggest a contraction, raising alarm bells across economic sectors.
The stagnant growth in August, marking a disturbing downward trend for the second month in a row, continued into September, according to advanced data.
The preliminary estimates by Statistics Canada show annualized shrinkage of 0.1% in the economy for the third quarter, following a contraction witnessed in the second quarter.
A technical recession is characterized by two successive quarters of negative growth.
However, experts like Nathan Janzen, the assistant chief economist at RBC, emphasize that broader economic weaknesses must be evident to declare a recession officially.
“The declines are still very small,” Janzen told the Canadian Press.
In August, only eight out of 20 industries saw GDP growth, according to the report.
The increase in 0.1% of GDP in service-producing sectors was counterbalanced by a decline in goods-producing ones, which saw a contraction of 0.2%.
Sectors such as agriculture, forestry, manufacturing, retail, and accommodation and food services witnessed downturns. Conversely, wholesale trade and mining, including quarrying, oil, and gas extraction, experienced growth.
The Bank of Canada, recognizing the fragile economic state, has maintained its key interest rate at five percent at its last two decision meetings.
Janzen believes that Tuesday’s data release justifies this cautious approach.
“This makes it more likely that they won’t hike interest rates again,” he told the Canadian Press.
Current high interest rates, though essential for curbing inflation, are anticipated to further suppress economic growth, especially as households face mortgage renewals at elevated rates.
Forecasts from the Bank of Canada paint a bleak economic picture, projecting weak growth for the remainder of the year and into 2024.
The reduction in spending, a response to higher borrowing costs, aims to mitigate the soaring inflation, which stood at 3.8% in September.
Meanwhile, The Bank of Canada holds onto expectations that annual inflation will recalibrate to the two percent target by 2025.
