Canadian Economy Stalls, Raising Recession Concerns

The Canadian economy has exhibited signs of stagnation in the recent quarter, potentially signaling a technical recession due to the aggressive interest rate hikes implemented by the Bank of Canada. Preliminary estimates indicate that the economy may have stalled at the industry level in September, suggesting an annual contraction of approximately 0.1%. This could mark the second consecutive quarterly decline in Gross Domestic Product (GDP), falling short of the central bank’s expectations.

Data reflecting GDP by industry showed minimal change from the prior month, with real GDP remaining essentially static in September. The Bank of Canada forecasts weak economic growth for the upcoming year, following an average growth rate of 1% over the past year. While expenditure data could hint at slight growth for the third quarter and potentially help avert a recession, it still significantly lags behind the central bank’s projections for overall GDP growth.

Surveys of consumers and businesses reveal tightened spending habits and a decrease in hiring and investment strategies. Industry-level activity in August was weaker than anticipated, with goods-producing sectors seeing slight contractions and service sectors experiencing marginal increases in production. Although mining and energy extraction showed robust growth, manufacturing continued to decline for the third consecutive month. Among the 20 tracked industry sectors, eight reported growth in August.

Recently, the Bank of Canada upheld its policy interest rate at a 22-year high of 5%, with policymakers warning of a slow easing in inflation. Economists suggest that this stagnation might indicate the conclusion of interest rate hikes by the central bank, with potential cuts on the horizon as prior rate increases continue to influence inflation dynamics.

The Bank of Montreal predicts that discussions around a possible recession could intensify due to consecutive negative quarterly GDP readings. Meanwhile, CIBC Capital Markets anticipates that the Bank of Canada may implement its first interest rate cut in the second quarter of next year.

This article was generated with the support of AI and reviewed by an editor.