One economist says that despite the headline increase in the latest gross domestic product (GDP) figures, Canadian consumers are spending less, with growth coming from government spending and a rising population.
On Friday, Statistics Canada reported that Canada’s economy grew at an annualized rate of 2.1 per cent in the second quarter. While the growth rate surpassed the Bank of Canada’s forecast, the economy shrank on a per-person basis for a fifth consecutive quarter.
Charles St-Arnaud, chief economist with Alberta Central and former economist at the Bank of Canada, said in an interview with BNN Bloomberg Friday that overall, the economy “seems to be holding up” despite the challenging environment for consumers.
“When you start to look at the detail, especially in Q2, with the fact that a lot of the growth is coming from government spending, it shows that the rest of the economy, especially consumers, are not doing that well,” he said.
Over the longer term, St-Arnaud said there is a risk in having growth mainly coming from the public sector.
While consumer spending was positive during the quarter, consumption per capita fell. During the second quarter, per-capita household spending fell by 0.4 per cent, according to Statistics Canada.
“So, it’s again the case that collectively we’re spending more but individually we’re actually spending less so that if it was not for the growth in population in Canada our economy would be much, much weaker,” St-Arnaud said.
In a report Friday, St-Arnaud said population increases continue to spur overall growth.
“As such, we estimate that if population growth was the same as pre-pandemic, GDP growth in Q2 would have been closer to 1.5 per cent q-o-q ar,” the report said.
He added that falling per-capita spending is due largely to declines in purchasing power.
“While disposable income rose by 1.5 per cent q-o-q in Q2, we estimate that real disposable income per capita declined by 0.5 per cent q-o-q,” the report said.
As per capita consumption continues to fall, St-Arnaud said in the interview that individual consumers are reducing spending and behaving as if they were in a recession.
“But when we look in aggregate, aggregate demand and aggregate consumer spending continue to grow and that’s just because of population growth,” he said.
Ahead of the next Bank of Canada interest rate announcement next week, St-Arnaud noted that the central bank has shifted its focus from fighting inflation “towards the downside risk to growth.”
“I don’t see that there’s anything in there (GDP figures)that could suggest that they (the Bank of Canada) should take a pause. And there’s nothing overly concerning that would warrant them to accelerate the pace and go for a 50-basis point (cut),” he said.
With files from The Canadian Press.
