Much like the global economic landscape, Canada’s economy is constantly in flux. The Gross Domestic Product (GDP) serves as a reliable indicator, providing insights and data into the economic health and prospects of the Canadian economy. 

The most recent figures reveal that GDP in January grew 0.6%. This post provides a greater understanding of the latest numbers published by Statistics Canada and their implications for borrowers in the Canadian market.

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Key Takeaways

• The latest GDP numbers show the Canadian economy grew 0.6% after growth remained unchanged in December.
• Q4 Real GDP edged up 0.2% following a decline of 0.1% in Q3.
• 18 of 20 sectors saw increases in January.

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Latest GDP Numbers in Canada

Gross domestic product (GDP) is the measurement of Canada’s economic activity based on the total value of all goods and services the country produces over a specific time. Dividing the total GDP by the population will show you how much economic activity each citizen contributes on average, referred to as the GDP per capita. 

When tracked over many years, GDP can show whether Canada’s economy is growing or contracting. When GDP is on the rise, this is a sign of good economic health, while a contracting GDP is a sign that Canada is not working at full capacity or might be heading toward or is already in an economic recession. 

As reported by Statistics Canada, January saw the Canadian economy grow 0.6%. 

Sectors that saw contractions include:

• Rail transportation fell 4.9% as severe winter weather in Western Canada forced train operations to adjust operations for safety. 
• The mining, quarrying, and oil and gas extraction sector declined by 1.9% following 3 consecutive months of gains. 

Sectors that saw gains include:

• The educational services sector grew by 6.0%, the largest contributor to January’s growth. This followed declines from November and December, which were attributed to strikes in Quebec. 
• The utilities sector increased by 3.2%, its largest growth since January 2022, largely attributed to the sudden drop in temperatures in mid-January. 
• Manufacturing increased by 0.9%, fully regaining December’s decline. 
• Real estate rental and leasing grew for the 3rd consecutive month by 0.4%. 

Q4 GDP data, as reported by Statistics Canada, increased by 0.2% over the quarter. Meanwhile, Q3 numbers were revised to a 0.1% decrease from the previously reported 0.3%. This data means Canada still does not fit the technical recession criteria, as we would need to see 2 consecutive quarters of declining growth to fit the definition.

Growth in 2023 slowed, increasing 1.2%, the slowest growth rate since 2016. Higher interest rates, inflation, forest fires, drought conditions, and strikes are all attributed to the slow economic growth over the year. 

Canada’s Economy Grew in January, with 0.4% Growth Projected for February 2024

January’s GDP was up 0.6% from December, with increases in 18 of 20 industrial sectors this month. According to Statistics Canada’s preliminary estimate for February, GDP growth will edge up 0.4%.

Housing Investment Declines 

Housing investment, a key driver of the Canadian economy, declined 0.4% in Q4, the 6th decline in the last 7 quarters. 

The resale market weakened, offsetting increased housing investments. Ownership transfer costs fell 7.7% in Q4. Despite the decline, new construction activity increased by 2.2%, and renovations increased by 0.2%. 

Housing investments represented 7.7% of GDP in 2023, a decline from its peak of nearly 10% in 2021. 

Real Estate Rental and Leasing vs. Home Sales

The real estate rental and leasing sector increased by 0.4% in January, growing for the 3rd consecutive month. This month’s growth is attributed to activity at the offices of real estate agents and brokers (up 4.0%). Growth in this sector was primarily due to higher activity in the Greater Toronto Area (GTA), Hamilton-Burlington and most markets in the Greater Golden Horseshoe in Ontario.

Household Spending Increases 

Household spending increased 0.2% in Q4 as supply chain issues eased, leading to higher spending on new trucks, vans, and utility vehicles. In 2023, household spending slowed to 1.7% from 5.1% in the previous year.

The Impact of Rising Bond Yields on Mortgage Rates

With the Canadian economy in a state of uncertainty, bond yields have seen a significant rise, hitting the 4% mark at the end of August, which was a 16-year high. Bond yields have hovered around this mark ever since. This rise in bond yields has had a knock-on effect on mortgage rates. Borrowers are faced with higher interest rates, leading to an increased cost of borrowing. 

5-year bond yields have recently started to come down. They began falling in November 2023, and lenders began lowering rates for fixed-rate mortgages as the yield fell. The 5-year bond yield currently sits around the 3.50% mark, which could indicate that fixed mortgage interest rates may continue to decrease if these yields continue to fall.

Frequently Asked Questions

Welcome to our Frequently-Asked Questions (FAQ) section, where we answer the most popular questions designed and crafted by our in-house mortgage experts to help you make informed mortgage financing decisions.

Final Thoughts

The latest GDP numbers paint a complex picture of the Canadian economy. With household savings unchanged and disposable income and spending rising at the same pace. Housing investments remain on the decline, and it’s expected that the Bank of Canada will continue to hold interest rates steady at the next announcement. Analysts are pricing in rate cuts at the June 2024 announcement. 

Projections for February suggest GDP will increase by 0.4% due to increases in mining, quarrying, and oil and gas extraction, manufacturing, and finance and insurance. These increases are expected to be offset by decreases in utilities.

With the economy reacting daily to interest rate increases, this may be the opportune time to get your finances ready if you are looking to purchase a home. Don’t delay; reach out to nesto’s mortgage experts to understand your borrowing capacity.

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