Despite persistently high inflation and rising interest rates, the news was generally better than expected for the Canadian economy in 2023.
At this time last year, many economists wondered whether it was possible to stop the Canadian economy from overheating without causing a recession. Yet we now estimate 1.1% growth for the Canadian economy in 2023, slightly lower than the economy’s 2% potential, but still higher than initial forecasts.
Strong population growth was largely responsible for the vigorous demand that supported the Canadian economy in 2023. In turn, the economy’s performance helped sustain the labour market. The unemployment rate did rise in the second half of the year, but that was caused by growth of the active working population rather than a slowdown in hiring. About 430,000 jobs were created between January and November 2023.
The resilience of the Canadian economy prompted the Bank of Canada to raise its key rate further during the year, increasing it by 75 basis points to its current level of 5.0%.
As a result, growth was uneven in 2023, with sectors that are sensitive to interest rates—such as housing—experiencing marked slowdowns. The residential market has mostly stabilized but remains in a slump. Canadian households are spending less, and the global economic slowdown caused a deceleration in business investment and exports in the second half of the year.
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