Canadian Economy Experiences Contraction in Third Quarter

Gantry cranes sit idle as a container ship is docked at port during a work stoppage, in Vancouver, on Wednesday, July 19, 2023. THE CANADIAN PRESS/Darryl Dyck

The Canadian economy witnessed a contraction in the third quarter, shrinking by 1.1 percent on an annualized basis, as reported by Statistics Canada.

Decline in GDP

The recent gross domestic product (GDP) figures released on Thursday paint a picture of an economy grappling with multiple challenges. This contraction follows a revised growth of 1.4 percent in the second quarter, indicating a significant downturn in economic activities.

Factors Behind the Contraction

The decrease in the third quarter is attributed to weak business and consumer spending, alongside a decline in international exports. This was partially offset by increases in government spending and housing investment. However, consumer spending continued to be flat for a second consecutive quarter, and business capital investment fell by two percent.

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Interest Rate Impact

The Bank of Canada’s interest rate hikes have been a major factor putting downward pressure on both consumer and business spending due to higher borrowing costs. These economic conditions are indicative of the challenges faced by businesses and consumers alike, as they navigate an environment of increasing financial strain.

Recession Concerns

While the decline in real GDP marks the second consecutive quarterly contraction, economists typically look for signs of a broader slowdown before declaring a recession. The softening economy and the potential continuation of this trend into the next year raise concerns about a rise in unemployment and further economic challenges.