Canada’s Economy Slows Down in Q4 Thanks to High Interest Rates

The Bank of Canada’s rising interest rates are slowing down the economy’s momentum, as GDP stalled for the first time in the final three months of 2022 following five straight quarters of growth.

Latest data from Statistics Canada showed that the economy expanded only 0.3% in the fourth quarter of 2022, following a 0.2% drop in the previous quarter. The figure comes in light of forecasts calling for an increase of 1.6% annualized growth, suggesting the high interest rate environment is taking a toll on Canada’s economy.

Putting downward pressure on GDP growth was a decline in businesses’ inventories, following two quarters of record-high accumulation of inventories. Real business investment also slumped in the fourth quarter, falling 7.8% and marking the third consecutive quarterly decline. The dismal figures come in light of borrowing costs rising to 4.5%, after sitting at historically low levels less than one year ago.

On the other hand, though, household finances improved, largely due to federal government benefits aimed at lower-income Canadians, including a GST tax credit top-up and a 10% increase in Old Age Security payments. In the fourth quarter, household disposable income increased 3%, while the household savings rate rose from 5% in the third quarter to 6%.

Information for this story was found via Statistics Canada. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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