This HillNote highlights key trends in the Canadian economy in the third and fourth quarters of 2022. Recent measures taken by the Bank of Canada in response to an elevated rate of inflation have led to lower economic growth and a decrease in house prices in a number of areas compared to the two previous quarters. Despite this economic growth slowdown and housing market correction, employment has continued to grow, and the unemployment rate has remained low.
Real Gross Domestic Product
Figure 1 shows that the annualized real gross domestic product (GDP) grew by 2.3% in the third quarter of 2022. In the fourth quarter, real GDP growth slowed to zero. At the beginning of 2022, the Bank of Canada’s monetary policy tightening initially slowed housing activity, then consumer demand for durables in the middle of 2022. The effects of the rise in interest rates are expected to broaden and moderate consumer spending on services and investment spending in 2023.
Figure 1 – Percentage Change in Annualized Real Gross Domestic Product (GDP), Canada,
First Quarter of 2018 to Fourth Quarter of 2022
Note: The real gross domestic product (GDP) at market prices (measured in contributions to percentage change, annualized) was calculated by Statistics Canada.
Source: Figure prepared by the Library of Parliament using data adjusted for inflation and seasonal fluctuations obtained from Statistics Canada, “Table 36-10-0104-01: Gross domestic product, expenditure-based, Canada, quarterly (dollars x 1,000,000),” Database, accessed 5 May 2023.
Real Gross Domestic Product by Sector
Figure 2 shows that average quarterly real GDP growth was positive for most sectors in the last two quarters of 2022. The three sectors that had the largest real GDP growth during that period were agriculture, forestry, fishing and hunting (3.4%), other services (1.4%), and professional, scientific and technical services (1.3%). The three sectors that had the lowest real GDP growth during that period were manufacturing (-0.7%), wholesale and retail trade (-0.4%), and mining, quarrying, and oil and gas extraction (-0.3%).
Figure 2 – Average Quarterly Real Gross Domestic Product Growth, by Sector, Canada,
Third and Fourth Quarters of 2022
Note: “Other services” includes repair and maintenance; personal and laundry services; religious, grant-making, civic, and professional and similar organizations; and services to private households.
Source: Figure prepared by the Library of Parliament using seasonally adjusted data obtained from Statistics Canada, “Table 36-10-0449-01: Gross domestic product (GDP) at basic prices, by industry, quarterly average (x 1,000,000),” Database, accessed 4 April 2023.
Inflation
Figure 3 shows the evolution of consumer price index (CPI) inflation on a quarterly basis. Between the first quarter of 2018 and the first quarter of 2020, the inflation rate fluctuated within the Bank of Canada’s inflation target range of 1% to 3%. The inflation rate dipped below 1% in the last three quarters of 2020. This was followed by a consistent increase over the next two years until it reached a peak inflation rate of 7.5% in the second quarter of 2022. Since then, the inflation rate has started to show signs of moderation. In its Monetary Policy Report of January 2023, the Bank of Canada forecasts a decline in the inflation rate from 6.7% in the fourth quarter of 2022 to 3% in the middle of 2023 and 2% in 2024. In 2023, it is anticipated to be somewhat lower than previously projected due to weaker gasoline prices and a quicker improvement in supply chain stability resulting in fewer disruptions.
Figure 3 – Year-Over-Year Change in Consumer Price Index (CPI) Inflation and the Bank of Canada’s Inflation Target Range, First Quarter of 2018 to Fourth Quarter of 2022
Note: The shaded area indicates the Bank of Canada’s inflation target range of 1% to 3%.
Source: Figure prepared by the Library of Parliament using data obtained from Bank of Canada, “Inflation: Definitions, Graphs and Data,” Database, accessed 10 May 2023.
House Prices
Figure 4 shows that house prices fell in all selected metropolitan areas from June 2022 to December 2022, except in Calgary. The three metropolitan areas with the largest decreases in house prices were Ottawa-Gatineau (-13.9%), Halifax (-12.9%) and Toronto (-12.6%). These house price decreases occurred as residential mortgage rates increased significantly following the Bank of Canada’s policy interest rate increases from 0.25% in December 2021 to 4.25% in December 2022.
Figure 4 – Variation in the Teranet–National Bank House Price Index™, by Selected Area, December 2021 to December 2022
Source: Figure prepared by the Library of Parliament using data obtained from Teranet-National Bank House Price Index, House Price Index, accessed on 4 April 2023.
Employment by Sector
Figure 5 shows that total employment increased by 0.9% between June 2022 and December 2022. The three sectors with the largest increases in employment were accommodation and food services (4.8%), other services (4.6%) and agriculture (4.5%).
In absolute terms, the three sectors with the largest employment increases were accommodation and food services (50,700 jobs created), professional, scientific and technical services (48,600 jobs created) and public administration (48,500 jobs created). The three sectors with the largest employment decreases were wholesale and retail trade (96,000 jobs lost), educational services (28,300 jobs lost) and forestry, fishing, mining, quarrying, oil and gas (2,700 jobs lost).
Figure 5 – Variation in Employment, by Sector, Canada, June 2022 to December 2022
Note: “Other services” includes repair and maintenance; personal and laundry services; religious, grant-making, civic, and professional and similar organizations; and services to private households.
Source: Figure prepared by the Library of Parliament using seasonally adjusted data obtained from Statistics Canada, “Table 14-10-0355-01: Employment by industry, monthly, seasonally adjusted and unadjusted, and trend-cycle, last 5 months (x 1,000),” Database, accessed 4 May 2023.
Unemployment by Immigrant Status and Sex
The Canadian unemployment rate for the population aged 15 years and over was 5.3% in 2022. This represented a decrease of 2.2 percentage points compared to 2021. Figure 6 shows that the unemployment rate for landed immigrants aged 15 years and over was 5.7% in 2022, compared to 5.0% for those born in Canada.
While the unemployment rate for immigrants who arrived in Canada in the last five years was relatively high at 8.2% in 2022, the gap between immigrants and individuals born in Canada decreased significantly as more time was spent in Canada. Specifically, the unemployment rate for immigrants who have lived in Canada for more than 10 years was nearly identical to that of Canadian-born individuals – 5.1% compared to 5.0%.
One notable difference between immigrants and Canadian-born individuals is the disparity in unemployment rates by sex. The unemployment rate for Canadian-born women was lower than that for Canadian-born men. Conversely, unemployment rates for immigrant women were higher than for immigrant men, regardless of how long they had lived in Canada, although this gap also decreased significantly as more time was spent in Canada.
Figure 6 – Annual Unemployment Rates of Persons Aged 15 Years and Over, by Immigrant Status and Sex, Canada, 2022
Source: Figure prepared by the Library of Parliament using data obtained from Statistics Canada, “Table 14-10-0085-01, Labour force characteristics of immigrants by sex and age group, annual,” Database, accessed 4 May 2023.
By Michaël Lambert-Racine and Shaowei Pu, Library of Parliament
Categories: Economics and finance