Canada: Q3 Real GDP Beat But Don’t Believe the Hype

Real GDP grew at an annual rate of 2.9% q/q in the third quarter of 2022, roughly double Bank of Canada and consensus expectations of 1.5%, respectively. Household consumption shrunk in Q3 (-1.0%), the first decline since Q2 2021. As expected, residential investment contracted sharply, falling by 15.4% due to declines in resale activity and renovations. Taken together, domestic demand fell by 0.6% in Q3 2022, the first contraction since Q2 2021. The advance in the headline number was mostly driven by trade. This hit corporate profits (net operating surplus), which dropped by 30.7%. In contrast, compensation of employees rose 5.0% in Q3. Meanwhile, the savings rate rose to 5.7% from a downwardly revised 5.1% in Q2. Q3 real GDP growth may have beaten the Bank of Canada and consensus call, but the devil is in the details. We now need to turn our attention to the final quarter of the year. For now, our tracking of 1.2% for Q4 remains above the Bank of Canada’s latest forecast of 0.5%. However, there’s still some data to take in, and the additional hikes will bite. Looking through the volatility, we continue to see Canada as heading towards recession in 2023.