Economic slowdown well underway in Canada, analysts say

GDP is likely to go down by 0.1% during the third quarter, Statistics Canada estimates

Economic slowdown well underway in Canada, analysts say

By most metrics, Canada has already entered a period of economic slowdown, according to market observers.

A preliminary estimate by Statistics Canada pegged a likely 0.1% decline in gross domestic product (GDP) during the third quarter, a clear sign that rising interest rates and still-high inflation are weighing down on its performance.

The national statistics agency also reported that the overall unemployment rate saw a slight increase to 5.7% in October, despite the addition of 18,000 jobs to the economy during the same month.

“[The latest jobs] report is further evidence that more rate hikes are not necessary to cool the economy,” said CIBC Capital Markets economist Andrew Grantham.

“The quality of jobs created was also not the best, with full-time positions falling (-3,000), and as such all of the growth was driven by part-time (+21,000). Private paid employment (no change) was also lacklustre again.”

Royal Bank of Canada (RBC) assistant chief economist Nathan Janzen cited robust population growth as a major driver of the October growth in unemployment levels.

"To date, higher unemployment has come from slower hiring (not strong enough to keep pace with rapid population growth) rather than layoffs,” Janzen said.

“Signs of softening in labour markets should reinforce the decision to pause rate hikes for now and increase the odds that the next rate change will (eventually) be a cut.”

Wage growth sluggishness to weigh on activity

The pace of wage growth decelerated from 5.3% in September to 5% in October, markedly lower than economists’ prior consensus calling for a 5.2% last month.

Deloitte Canada chief economist Dawn Desjardins said that this metric has been of particular interest to the central bank recently.

“These wages numbers are not where they want them to be, but directionally, it does suit the Bank of Canada very well in terms of indicating that the labour market — which has been robust — is finally showing real

“That will be sufficient for the Bank of Canada really to ease off on the break a little bit.”