Canada’s real gross domestic product rose by 0.1% in June from May amid a slumping housing sector, according to data released by Statistics Canada on Wednesday. For the second quarter overall, the economy posted a 3.3% gain, which fell short of expectations.
While the economy is not in recession, the report suggests that one may soon arrive as the global economy slows and brings down demand for Canadian goods.
At the center of the decline was housing, which makes up just under 10% of the entire economy and took a major hit following the Bank of Canada’s interest rate hikes that began in March.
Listings in major cities are the lowest in decades, and housing prices have fallen significantly from their peak in February in areas that surged during the pandemic. Now, those areas, known in industry parlance as Zoom towns, are contracting as people head back to cities.
The growth story
On the positive side, growth in the second quarter was bolstered by business investment and household spending on services.
With most to all pandemic restrictions dropped, more Canadians traveled and returned to the office, spending more on accommodations, dining out and entertainment.
Business investments in inventories showed strong growth across sectors, and agricultural production surged as global demand for grains and cooking oils spiked following Russia’s invasion of Ukraine.
But as fall approaches, household spending on hotels and eating out is poised to fall in September from the summer peak, slowing the economy further.
If Canada enters a recession early next year, it will be led by the decline in the housing sector. Already, July’s advance data is showing a slight decline.
Household savings remain well above the pre-pandemic levels. Still, with households facing a higher cost of living because of inflation and the end of government support during the pandemic, lower-income households will find their savings dwindle just as the economic downturn arrives.