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Written By: Benjamin Pipicelli, Lexx Thomson, Dorje Gyaltsen, & Gordon Huynh
Economics Newsletter – November 3, 2023
Canada’s Economy at a Glance
Author’s Commentary
Canadian GDP: Skirting Recession
The Canadian economy is already skirting a recession, with preliminary industry data for Q3 suggesting the possibility of a further slight contraction in activity to follow Q2’s surprise decline. While the expenditure data to be released later could still show that the economy stayed out of recession this year, the fact that activity has been so weak at a time when population and labour force growth has been so strong clearly shows that past rate hikes have worked to cool the activity – perhaps a little bit too well.
The monthly GDP for August showed no change compared to the prior month, which was weaker than the advance estimate and consensus forecast for a 0.1% increase. Gains in areas such as transportation, wholesale and mining, and oil & gas (which were rebounding from the port strike and wildfire disruptions) were broadly offset by declines in sectors such as manufacturing, retail and accommodation & food service. On a year-over-year basis, retail was down by 0.8% in August, which would represent an even larger decline in per capita terms. The recovery in accommodation & food services from the pandemic has also stalled, with activity flat year-over-year and still below 2019 levels.
News and Noteworthy
Bank of Canada holds key rate at 5 percent, repeats warning of possible future hikes
The Bank of Canada left its benchmark interest rate unchanged at 5 percent on Wednesday amid increasing signs that rate hikes are weighing on the Canadian economy. Still, it left the door open to further hikes over concerns about stubborn inflation. Economists had widely expected the central bank to leave its rate steady as the economy slows and inflation eases. Inflation edged down in September, at a rate below what analysts had expected, and the central bank has forecast GDP growth will be up 0.8 percent annualized in the third quarter, below its previous forecast published in July of 1.5 percent. Read more.
Air Canada shares fall despite profit beat, strong travel demand
Air Canada (AC.TO) shares fell on Monday after the release of third-quarter results that blew past analyst expectations, as concerns about economic uncertainty and cost pressures appeared to weigh on investors. Strong summer travel demand in the three months ending Sept. 30 helped Air Canada beat analyst expectations for the third quarter. The Montreal-based airline reported an adjusted profit of $1.28 billion, or $3.41 per diluted share, in the quarter, up from an adjusted net income of $438 million, or $1.07 per diluted share, during the same period last year. Analysts had expected an adjusted profit of $2.15 billion, according to Reuters. Read more.
About 60% of outstanding mortgages facing payment shock in next 3 years: RBC
With 60 percent of all outstanding mortgages coming due in the next three years, homeowners will be facing a “payment shock” that could be significant and a tail risk for Canadian banks, a new report says. RBC Capital Markets analyst Darko Mihelic wrote in a research note released on Monday that 60 percent of outstanding mortgages at Canadian chartered banks are coming due in the next three years, and “that payment shock (the increase in payment at renewal) could be significant and represents a tail risk for Canadian banks.” Read more.
Despite economic uncertainty, analysts upbeat ahead of Shopify’s earnings
As questions loom about the financial health of consumers and retailers going into the all-important holiday season, Shopify’s (SHOP.TO)(SHOP) upcoming earnings may offer a glimpse into the resiliency of the e-commerce market. The e-commerce software company is set to unveil third-quarter earnings before markets open on Thursday morning, and some analysts are upbeat about its prospects, despite lingering economic uncertainty. “We believe Shopify is likely to report healthy Q3 results,” RBC Capital Markets analyst Paul Treiber wrote in a research note last month. Read more.
Economics Society News, Events, and Articles
– Keep an eye out on our Instagram page @uweconsoc for updates regarding future events
– Our weekly Economics Study Lounge has begun! Come to HH2034 Project Cube every Thursday from 6:30-7:30 pm!
– Check out our most recent original articles, “What’s at Stake Between Canada and India”, written by Finn O’Connor, and
“Prescription for Change: Illuminating the Shadows of the Pharmaceutical Insulin Industry”, written by Jay Mistry