Statistics Canada is set to release its August gross domestic product report this morning. The Bay Street Financial District is shown with the Canadian flag in Toronto on Friday, August 5, 2022. THE CANADIAN PRESS/Nathan Denette
OTTAWA – The Canadian economy may have entered a technical recession, according to the preliminary gross domestic product estimate from Statistics Canada.
The federal agency released its August GDP report on Tuesday, which shows the Canadian economy remained flat in the month, while a preliminary estimate suggests it shrank in the third quarter.
The report says higher interest rates, inflation, forest fires and drought conditions continued to weigh on the economy.
August marked the second consecutive month where growth remained flat, and advance datasuggests the economy continued that trend in September.
For the third quarter, Statistics Canada’s preliminary estimate suggested the economy shrank at an annualized rate of 0.1 per cent, which would follow a contraction in the second quarter.
A technical recession is defined as two consecutive quarters of negative growth, but economists generally look for broader-based weakness to qualify a downturn as a recession.
“The declines are still very small,” said Nathan Janzen, assistant chief economist at RBC.
The report said eight out of 20 industries grew in August, while growth in services-producing sectors was offset by goods-producing sectors.
Among the industries that experienced growth are wholesale trade and mining, quarrying, oil and gas extraction.
Industries such as agriculture and forestry, manufacturing, retail and accommodation and food services shrank.
The Bank of Canada opted to hold its key interest rate steady at five per cent at its last two decision meetings. Janzen said Tuesday’s release solidifies this decision.
“This makes it more likely that they won’t hike interest rates again,” he said.
High interest rates are expected to continue dampening growth in the economy, particularly as more households renew their mortgages at higher rates.
A recent forecast from the Bank of Canada suggests economic growth will remain weak for the rest of the year, and into 2024.
The pullback in spending caused by higher borrowing costs is supposed to help cool high inflation, which was sitting at 3.8 per cent in September.
The Bank of Canada expects annual inflation will return to the two per cent target in 2025.
This report by The Canadian Press was first published Oct. 31, 2023.
