Canada's GDP growth stumbles in February, with GDP per capita decline signaling deeper economic issues
Canada's economic growth in February fell short of expectations, as revealed by Statistics Canada's latest data, reports the Financial Post.
The economy expanded by only 0.2 percent, below the analysts' forecast of 0.3 percent and the preliminary estimate of 0.4 percent by Statistics Canada. This slower growth rate signals a potential weakening in the economy's momentum.
A significant concern among economists is the continued decline in GDP per capita, a critical measure of the standard of living. Matthieu Arseneau, deputy chief economist at National Bank of Canada, highlighted that GDP per capita is now three percent lower than its peak in September 2022.
“A decline of this magnitude has never been recorded outside of a recession,” Arseneau noted, estimating a -1.2 percent annualized and -0.3 percent non-annualized GDP per capita for the first quarter.
Similarly, Royal Bank of Canada’s economist, Claire Fan, pointed out that with Statistics Canada forecasting flat growth in March, the first quarter is likely to mark the seventh consecutive decline in per capita terms.
Fan estimates a 0.5 percent drop in GDP per capita from the fourth to the first quarter of this year.
GDP per capita is crucial as it indicates the average standard of living across the population. Despite Canada's record population growth, which has historically helped stave off technical recessions, Arseneau notes significant economic underperformance on a per-person basis.
Jimmy Jean, chief economist at Desjardins Group, suggested in an interview that, based on per capita GDP, “the Canadian economy is, for all intents and purposes, in a recession.”
The apparent contradiction of solid overall GDP growth of 2.5 percent in the first quarter, boosted by one-off events, did not prevent other economic indicators from showing strain.
Notably, the unemployment rate increased to 6.1 percent in March from 5.7 percent in January. National Bank predicts this could rise to seven percent by year's end.
Further signs of economic fragility include a slowdown in inflation. Over the past three months, the Bank of Canada’s preferred core inflation metrics have been running at the lower end of its target range of one percent, according to Arseneau.
He argues that these conditions should compel the Bank of Canada to cut interest rates this summer to mitigate further economic downturn.
Arseneau’s outlook for the coming quarters remains pessimistic, projecting only a 0.6 percent growth for the year, underscoring the need for cautious monetary policy to navigate the looming economic challenges.
