As the final quarter of 2023 drew to a close, Canada’s economic landscape experienced a mix of growth and decline across various sectors, painting a nuanced picture of the nation’s economic health.
Real GDP saw a modest uptick of 0.2% in Q4 2023, rebounding from a slight decline in the previous quarter. The growth was primarily fueled by an uptick in exports coupled with reduced imports, although tempered by a decline in business investment. Final domestic demand, comprising expenditures on final consumption and gross fixed capital formation, witnessed a marginal dip of 0.2% in Q4, marking a contrast to the previous quarter’s slight increase. Despite this, both real GDP and final domestic demand exhibited a year-on-year rise, signaling a sustained recovery from the pandemic-induced downturn of 2020.
Exports of goods and services experienced a notable rebound, rising by 1.4% in Q4, buoyed by increased exports of crude oil, bitumen, and travel services. Conversely, imports registered a decline of 0.4%, led by reduced imports of various goods including intermediate metal products and motor vehicle components. The year 2023 witnessed robust export growth outpacing the increase in imports, driven by heightened demand for passenger cars, light trucks, and travel services.
Household spending saw a modest increase of 0.2% in Q4, primarily driven by higher expenditures on vehicles amid easing supply chain constraints. However, a decline in spending by Canadians abroad and an increase in spending by non-residents in Canada posed challenges to overall household spending growth. Notably, per capita consumption expenditures declined for the third consecutive quarter, reflecting a disconnect between population growth and spending patterns. Despite these trends, household net saving remained stable at 6.2%, with disposable income and spending rising in tandem.
Housing investment continued its downward trajectory, witnessing a sixth decline in seven quarters, attributed to a weakened resale market despite increased activity in new construction and renovations. Similarly, business investment faced challenges, with real investment declining for the sixth time in seven quarters. Decreased expenditure on non-residential structures and machinery, coupled with slowing investment in inventories, contributed to the overall decline in business investment.
Corporate incomes exhibited a mixed performance, with a notable increase of 2.9% in Q4, primarily driven by the expansion of gross operating surplus in the non-financial sector. However, the financial sector saw a decline in gross operating surplus, attributed to narrowing net interest margins at chartered banks following central bank rate increases. These contrasting trends underscored the diverse challenges faced by different sectors within the economy.
While export-driven growth and stable household savings provide reasons for optimism, sluggish investment trends and declining corporate incomes present areas of concern. As Canada navigates through these economic currents, policymakers and stakeholders must remain vigilant, adapting strategies to foster sustainable growth and resilience in the face of evolving global dynamics.