Quick take

After a Volatile First Quarter, Growth Decelerates in April

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  • Canadian real GDP grew by just 0.3 per cent (month-on-month) in April, in line with Statistics Canada’s estimate of 0.2 per cent. GDP was up 5.0 per cent compared to the same month last year.
  • The preliminary estimate for May is for a 0.2 per cent monthly decline. After a highly volatile first quarter, this estimate suggests the economy will likely chart a steadier path in the second quarter.
  • Among the goods-producing industries, extractive industries led the way. Output in the mining, quarrying, oil and gas extraction sector grew by 3.3 per cent. There was also growth in utilities and manufacturing. Meanwhile, output in the construction industry remained relatively unchanged.
  • Tailwinds from reopening continued to propel growth among the high-contact services industries. The largest of these gains was in the arts, entertainment and recreation industry, where output grew by 7.0 per cent. The transportation and warehousing industry grew by 2.2 per cent, while output in the arts entertainment and recreation industry increased by 4.6 per cent. Among the other services industries, growth was relatively muted.

Key Insights

All eyes remain laser-focused on inflation. As the Bank of Canada cranks up interest rates, flagging consumer and business confidence are early signs of an economic slowdown. This would translate into reduced hiring and the prospect of potential job losses. But given the significant unmet labour demand in the economy, the labour market appears well-positioned to absorb job losses and limit the economic cost as interest rates start to bite.

As the cost of living rises, higher wage growth may add fuel to the fire and create a wage-price spiral. Still, so far, the evidence of a significant uptick in wage growth is scant, and the culprits for inflation lie elsewhere. As wages struggle to keep pace with inflation, many Canadians are on track for a real wage decrease this year. Inflation continues to erode purchasing power, and any pull back in consumption will suppress GDP growth. Unlike wages, corporate profits grew by 11 per cent in the first quarter of 2022 and accounted for the highest ever recorded share of GDP. While supply disruptions have pushed up input costs impeding the ability of firms to produce goods, they have also provided firms the opportunity to increase selling prices, resulting in significant growth in corporate profits. And higher corporate profits are contributing to higher inflation.

The performance across Canada’s industries continues to be shaped by the pandemic and the evolving international context. After a searing 2021, a cooling housing market looks set to increasingly weigh on output in the real estate and construction sector. Meanwhile, consumers’ spending patterns are changing. This is dampening growth in some retail segments, including building materials and supplies, and fueling a long-awaited recovery of accommodation and food services as well as the arts, entertainment, and recreation sector. Similarly, increased travel activity is helping drive up output in the transportation and warehousing industry, including ground and air transportation services. Global events, most notably the war in Ukraine, have pushed up commodity prices, supporting output in the mining, quarrying and oil and gas extraction industry.

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Liam Daly

Liam Daly

Economist

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