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Canada GDP Numbers: What Borrowers Should Know

Canada GDP Numbers: What Borrowers Should Know

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    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 grew 0.3% in April. The quarterly report released on May 31st revealed that GDP grew 0.4% in the first quarter of 2024.This post provides a greater understanding of Statistics Canada’s latest numbers and their implications for borrowers in the Canadian market.

    Key Takeaways

    • The latest GDP numbers show the Canadian economy grew by 0.3% after remaining unchanged in March.
    • In 2023, GDP grew 1.2%.
    • Preliminary estimates indicate the economy grew 0.1% in May.

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    Latest GDP Numbers in Canada

    Gross domestic product (GDP) measures Canada’s economic activity based on the total value of all goods and services the country produces over a specific time period. Dividing the total GDP by the population shows 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, the Canadian economy grew 0.3% in April, with goods-producing and service-producing industries equally contributing to this month’s growth.

    Sectors that saw contractions include:

    • Construction declined 0.4% in April after having the largest recorded growth in March since October 2022.

    Sectors that saw gains include:

    • Wholesale trade (2.0%), mining, quarrying, and oil and gas extraction (1.8%) and manufacturing (0.4%) were the largest contributors to growth in April. 
    • Finance and insurance (0.4%) bounced back following a 0.3% decline in March. 
    • Arts, entertainment, and recreation (0.9%) increased for the second month due to an increase in spectator sports. This is attributed to the Canadian hockey teams that qualified for the playoffs during the second half of the month.

    Statistics Canada’s Q1 GDP data show an increase of 0.4% over the first quarter. Meanwhile, Q4 2023 numbers were revised to reflect no change from the previously reported 0.2% gain. This data means Canada still does not fit the technical recession criteria, as we would need to see two consecutive quarters of declining growth to fit the definition. 

    Higher household spending was the top contributor to the increase in the first quarter of 2024. This increase is attributed to a 1.1% increase in spending on telecommunications services, rent and air transport.

    Canada’s Economy Increased 0.3% in April, With 0.1% Growth Projected for May 2024

    April’s GDP increased by 0.3%, with 15 of 20 industrial sectors increasing this month. According to Statistics Canada’s preliminary estimate for May, GDP growth will edge up 0.1%. This advanced estimate is due to increases in manufacturing, real estate and rental and leasing, and finance and insurance. Offsetting these increases are expected decreases in retail trade and wholesale trade.

    Housing Investment Increases 

    Housing investment, a key driver of the Canadian economy, increased 0.3% in Q1 due to ownership transfer costs representing resale activity rising 7.1%. 

    Ontario, British Columbia, and Quebec had the largest increases in resales at 6.5%, 10.3% and 12.4% respectively. Prices in these provinces, however, fell in Q1. 

    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 0.004% in March and 0.6% in Q1 of 2024, marking this sector’s 7th consecutive quarter of continuous increases. Offices of real estate agents and brokers and activities related to real estate led to a quarterly increase of 6.6%. Higher activity in the Greater Toronto Area (GTA) and other markets in Ontario contributed to Q1 growth.

    Household Spending Increases 

    Household spending increased by 0.7% in Q1, primarily due to a rise in telecommunications services, rent, and air transport. Household spending on goods increased 0.3% due to a rise in new trucks, vans and sport utility vehicle purchases.

    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 3.60% 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.

    What is GDP?

    The GDP is a measurement of the health of the Canadian economy as a whole.

    What is the GDP of Canada, and why is it important?

    As of Q1 of 2024, Canada’s GDP increased by 0.4%, indicating economic growth. GDP is an important indicator of whether our economy is doing well or if there are signs of a recession. A recession can be determined by two consecutive quarters of decline in real GDP.

    What are the major industries in Canada?

    Canada has a diverse economy with key industries including natural resources (such as oil, mining, and forestry), manufacturing, services sector (including real estate, education, and health), and increasingly, technology and innovation.

    Final Thoughts

    The latest GDP numbers paint a complex picture of the Canadian economy. With household spending and housing investments up, it’s unclear whether the Bank of Canada will consider a rate cut at the next announcement.

    Analysts and economists are pricing in a slight chance of a rate cut for the July 2024 announcement. Most expectations are that the BoC policy rate may be held until the September announcement. 

    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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