Home Buying

Canada GDP Numbers: What Borrowers Should Know

Canada GDP Numbers: What Borrowers Should Know
Written by
  • Ashley Howard
| Sep 6, 2023
Reviewed, Sep 21, 2023

Much like the global landscape, Canada’s economy is in a constant state of 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 an unexpected contraction in the GDP, significantly impacting several sectors. This article seeks to provide a greater understanding of the latest numbers published by Statistics Canada and their implications for borrowers in the Canadian market.

Key Takeaways

  • The latest GDP numbers show a contraction in the Canadian economy, with an annualized decline of 0.2% in the second quarter of 2023.
  • Declines in housing investment, slower international exports, and household spending significantly contributed to the economic slowdown.
  • Despite higher disposable income and increased household savings, Canadians are saving more than spending.

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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 and is referred to as the GDP per capita. 

When GDP is tracked over many years, it 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, June saw an unexpected turn in the Canadian economy. 

  • The anticipated 1.2% GDP growth fell short, with the economy instead contracting at an annualized rate of 0.2%. This dip was primarily due to wholesale trades (down 3%) falling after being one of the largest growth contributors in May. 

7 out of 9 subsectors decreased in total during the month, with

  • machinery, equipment and supplies wholesalers down 5.7%,
  • miscellaneous wholesalers down 7%,
  • and motor vehicle, motor vehicle parts and accessories wholesalers down 2.8%.

Forest fires also negatively impacted multiple industries, which were down 0.3% during the month, with the following industries being adversely affected by fires in the country 

  • Mining and quarrying, 
  • oil, 
  • gas, 
  • rail transportation,
  • accommodation,
  • and food services. 

Canada’s Economy Declined in June, with Unchanged Growth Projected in July

June GDP saw a 0.2% decrease from May. While wholesale trade, construction, air transportation, and forest fire effects on multiple industries contributed to this decline, the energy sector, real estate, rental and leasing, and public sector all saw growth in June. 

According to Statistics Canada’s preliminary estimate for July, GDP growth will be essentially unchanged. This indicates that the economy may have plateaued as it transitions into the second half of the year.

Housing Investment Continues to Decline 

Housing investment, a key driver of the Canadian economy, fell 2.1% in the second quarter. 

This marks the fifth consecutive quarterly decrease, largely due to an 8.2% drop in new construction and a 4.3% decrease in renovation activities. 

The rise in borrowing costs, driven by the Bank of Canada’s interest rate hikes, is likely a significant factor in this decline. 

Since it appears that interest rate hikes are now making their way through the economy, this decline could mean that the Bank of Canada holds rates steady possibly for the remainder of the year as we wait to see how the economy and inflation respond. 

Real Estate Rental and Leasing vs. Home Sales

Despite the downturn in home sales, the real estate rental and leasing sector saw a 0.3% rise in June, with two of three subsectors seeing an upward trend. Interestingly, this sector has been experiencing continuous growth since November 2022. 

The demand for real estate remained strong, with increases in British Columbia and Alberta offsetting lower activity in the Greater Toronto Area.

With this news, it appears that the rise in interest rates is being felt throughout the housing market. Coupled with the increase in immigration and decrease in construction, it appears that the demand for housing may not slow anytime soon. 

Household Savings Rate Increases on Higher Disposable Income

Household disposable income saw a 2.6% increase in the second quarter. 

  • This marks a change from the previous quarter, where disposable income was down 0.6%. 
  • The growth in disposable income was largely due to gains in compensation of employees, up 2.2% and non-farm self-employment income, up 3.1%.

This increase in disposable income and a slowdown in consumer spending led to a rise in the household savings rate. This rate climbed to 5.1% in the second quarter, a change from 3.7% in the first quarter. However, this higher savings rate suggests that Canadians may be wary of a possible recession.

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.  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. 

With the release of June’s GDP numbers, the 5-year bond yield fell to 3.89%.

What this means for fixed mortgage interest rates is yet to be realized and will largely depend on which direction bond yields travel in the next few weeks. 

Most lenders tend to take longer to react and lower rates when bond yields fall versus when they increase rates. A slower reaction to lowering rates is a protective measure in case bond yields increase again in the coming days or weeks.  

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 the second quarter of 2023, Canada’s GDP stands at a 0.2% annualized contraction rate, indicating a slight economic downturn. 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 households setting aside more savings due to increased disposable income while housing investment continues to decline, the Bank of Canada is expected to hold interest rates steady in the near term. 

As we move into the latter half of 2023, it’s clear that the state of the Canadian economy may finally be reacting to interest rate hikes. As these hikes continue to work their way through the economy, the GDP is expected to remain relatively flat when July stats are released at the end of the month. With the economy contracting, this may be the most opportune time to get your finances ready if you are looking to purchase a home. Reach out to nesto’s mortgage experts to understand your borrowing capacity.

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