Quick take

GDP Rises as Canada Shakes Off the Shadow of Omicron

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  • Canadian real GDP grew by 1.1 per cent in February, exceeding Statistics Canada’s preliminary estimate of 0.8 per cent.
  • The preliminary estimate for March is real GDP growth of 0.5 per cent. If correct, this would mean the Canadian economy grew by 1.4 per cent in the first quarter of 2022, an impressive performance given the significant disruption caused by the Omicron variant.
  • Among the goods-producing sectors, output in agriculture, forestry, fishing and hunting industry increased by 1.4 per cent, a sixth consecutive month of growth. There were also notable gains in construction and mining, quarrying, oil and gas extraction, with growth in these sectors more than offsetting a small decline in utilities.
  • There were broad gains across the service economy, spanning the public and private sectors. As governments across Canada once again began lifting restrictions, high contact services responded positively. Output increased by 15.1 per cent in the accommodation and food services industry. Similarly, in the arts, entertainment and recreation sector, output rose by 8.4 per cent. Meanwhile, growing confidence among Canadians to travel drove up output in the transport and warehousing industry by 3.1 per cent.

Key Insights:

  • Savings among Canadian households remain elevated and continue to provide fuel for consumer spending. With restriction stringency across the country now at the lowest level since the pandemic began, consumers are increasingly directing their purchases towards services. High inflation is likely to curb some discretionary spending as essential purchases take a bigger bite out of household budgets. Rising interest rates may also dampen demand for big-ticket items such as autos and appliances. Overall, a pivot towards service expenditures and high inflation is set to draw some wind out of the sails of the retail industry over the coming quarters.
  • After a red hot 2021, there are emerging signs that the temperature of the Canadian housing market is starting to fall. Despite recent employment gains and projections of strong immigration-led population growth, consumers are fatigued from relentless house price inflation and now face increased mortgage costs as interest rates are cranked up. Yet despite the prospect of a cooling resale market, inventories of new homes in many regions remain low, keeping home-builders busy. Representing over a third of all construction output, the activity in the residential construction segment has a significant bearing on the overall performance of the construction industry.
  • Amid sky-high inflation, the need for productivity-boosting private investment is more pressing than ever. Canada has a history of weak investment and productivity growth, particularly in comparison to the United States. While balance sheets among Canadian companies are in decent shape, concerns about labour availability, persistent supply chain disruptions and rising interest rates are likely to dampen the appetite for investment. As Canada transitions towards a “post-pandemic world,” it must invest in safeguarding and developing its competitive advantage across a range of industries, including natural resources, manufacturing and agriculture.

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Liam Daly

Liam Daly

Economist

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