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Group Project 2

Canadian economy not in recession, but 2023 was one of its weakest recent years:

A Macroeconomic Case Analysis

Fatemeh Ketabi (1913744)

Kirti (2323092)

Madushika Pulendri (2328534)

Muofatoy Khusenova (2331454)

Sergei Kotov (2340885)

University Canada West

MBAF 504 Business Economics(HBD-SPRING24-18)

Dr. Ross Ghouchani

May 17th, 2024

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Table of Contents

Executive Summary........................................................................................................4
Canadian economy not in recession, but 2023 was one of its weakest recent years: A
Macroeconomic Case Analysis...................................................................................................5
Introduction.................................................................................................................5
Macroeconomic Performance.....................................................................................5
Growth in Real Gross Domestic Product (GDP)........................................................5
An overview of 2023 real GDP growth..................................................................5
Per Capita Real GDP growth..................................................................................7
GDP by Industry: Province and Territories 2023....................................................7
Labor market...............................................................................................................9
Unemployment Rate................................................................................................9
Growth in average hourly wages...........................................................................11
Inflation.....................................................................................................................11
Policies to control inflation...................................................................................15
Recommendations for addressing the weak economic performance........................15
Balanced Monetary Policy....................................................................................15
Fiscal Policy Measures..........................................................................................16
Addressing Inflation..............................................................................................16
Promoting Exports.................................................................................................16
Social Safety Nets.................................................................................................16
Implementation strategy........................................................................................17
Conclusion.................................................................................................................17
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Executive Summary

This report is intended to analyze the article “Canadian economy not in recession, but 2023

was one of its weakest recent years” by The Canadian Press in CBC, using macroeconomic

notions and theories learned. Extended references from verified sources augment the analysis.

The report offers insights into the Canadian economy while reflecting on macroeconomic

concepts such as real GDP growth, unemployment, inflation and monetary and fiscal policies.

We have provided several recommendations to address the weaker economic performance

based on our understanding of the theory and concepts learnt.

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Canadian economy not in recession, but 2023 was one of its weakest recent years: A

Macroeconomic Case Analysis

Introduction

The Canadian economy witnessed a small amount of growth in 2023, despite the

backdrop of high interest rates, low consumer spending, and depressed investments in

business. This resulted from the effects of the COVID-19 pandemic, as well as high interest

rates, which made borrowing more challenging and harder for individuals and businesses.

Even though there was no recession in Canada’s economy, there were still significant

challenges to overcome. To provide insights on the opportunities and problems Canada

encountered, this case study will assess the country’s dynamics in 2023 using macroeconomic

statistics, economic theories, and policy considerations. The report will also discuss potential

government initiatives to enhance it.

Macroeconomic Performance

Growth in Real Gross Domestic Product (GDP)

An overview of 2023 real GDP growth

Despite avoiding itself from a recession, since 2016 the Canadian economy grew at its

slowest pace in 2023, excluding the pandemic year 2020 (Figure 1). While there were positive

impacts on GDP growth, many factors including tight monetary policies, inflation rate and

several climate-related events had their negative impacts on growth output across Canada in

2023 (Statistics Canada, 2024).

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Figure 1

GDP of Canada (Annual Change)

GDP Of Canada (Annual Change)

6.00% 5.30%
3.80%
4.00% 3.00% 2.70%
2.90%
Annual Change

2.30%
1.90%
2.00% 1.00% 1.10%
0.60%
0.00%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
-2.00%

-4.00%

-6.00% -5.00%

Year

Note. Adopted from GDP of Canada in IBISWorld, https://www.ibisworld.com/ca/bed/gdp-of-

canada/19/. Copyright 2024 by IBIS World.

However, in Q4 2023 an annualized increase of 1 per cent in the real GDP was

reported, which exceeded the Bank of Canada’s forecast of 0.7 per cent for Q4 (The Canadian

Press, 2024 Jan). This increase was reported after a 0.5 per cent decrease in Q3 2023.

The real GDP growth increase in Q4 primarily came from the rise in exports while

there was a decline in both housing sector and business investments. Diving into Q4, the first

rise in GDP growth in the last six months was reported to be 0.2 per cent in November (The

Canadian Press, 2024 Jan). In December, GDP growth rate was almost flat due to the impact

of manufacturing industries shrinkage and public sector unsettlements in Quebec (The

Canadian Press, 2024 Feb).

However, the rise in GDP growth is under the criticism of many economists as it still

fails to account for the sustainability of economic recovery. There’s been one-off cases in Q4
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leading the GDP growth hence they argue that this rise does not indicate the robustness of the

economy or the recovery in aggregate demand or consumer activity (The Canadian Press,

2024 Jan). Still there are various factors like weak business investments, declined housing

activity, and decreased consumer spending that weigh down the economic growth.

Per Capita Real GDP growth

The decline in the real GDP per capita is largely attributed to the increasing

population. While consumer spending is on an increasing trend, on a per capita basis it

continues to decline amid the stronger population growth of the country (The Canadian Press,

2024 Feb). This further indicates the challenges faced by Canadian households because of the

slow economic growth and high inflation.

GDP by Industry: Province and Territories 2023

The real GDP grew in every province in Canada for the second consecutive year,

except Newfoundland and Labrador. Figure 2 illustrates the real GDP growth in each province

and territory led by Ontario (1.6%), British Columbia (1. 6%) and Alberta (1.5%). These

provinces are also the highest contributors for national GDP increase in 2023 where Ontario

accounts for half of the national GDP increase by 0.6 per cent and, British Columbia and

Alberta’s contributions are 0.23 and 0.22 per cent points respectively. However, in most

provinces, the growth is at a slower pace compared to previous year (Statistics Canada, 2024).

As shown in Figure 3, higher outputs from service sector in every province and

territory boosted the overall economic growth in 2023, while goods-producing industries

found the year quite challenging (Statistics Canada, 2024).

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Figure 2

Real Gross Domestic Product Growth, Canada, Provinces and Territories, 2023

Note. From “Gross domestic product by industry: Provinces and territories, 2023” by

Statistics Canada, https://www150.statcan.gc.ca/n1/daily-quotidien/240501/g-a003-eng.htm.

Copyright by Statistics Canada 2024.

Figure 3

Contributions to Percentage Change of Goods-Producing Industries and Services-Producing

Industries, Provinces and Territories, 2023

Contribution to Percentage Change : in provinces

and territories
Contribution % change (in percentage

4
3
2
1
points)

0
N.L. P.E.I. N.S. N.B. Que ON MB Sask AB B.C. Yt N.W.T. Nvt
-1
-2
-3
-4

Goods-producing industries Service-producing industries

All industries
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Note. Adopted from “Gross domestic product by industry: Provinces and territories, 2023” by

Statistics Canada, https://www150.statcan.gc.ca/n1/daily-quotidien/240501/g-a003-eng.htm,

Copyright by Statistics Canada 2024.

Labor market

Unemployment Rate

With the slower pace of economic growth, Canadian labor market continued to soften,

reflecting the signs of weakness in the economy. The unemployment rate has been in an

upward trend since April 2023 (Figure 4) and continued to increase during Q4 2023 (Statistics

Canada, 2024).

Figure 4

Unemployment rate

Unemployment Rate in Canada

16.0

14.0

12.0
Unemployment rate (%)

10.0

8.0 6.0
5.8
6.0

4.0 5.7 6.1

2.0

0.0
20 02
0 20 02
0 21 02
1 21 02
1 22 02
2 22 02
2 23 02
3 23 02
3 24 02
4
20 2 20 2 20 2 20 2 20 2 20 2 20 2 20 2 20 2
a ry ril ul
y er a ry ril ul
y er a ry ril ul
y er a ry ril ul
y er a ry ril
nu Ap J to
b
nu Ap J to
b
nu Ap J to
b
nu Ap J to
b
nu Ap
Ja Oc Ja Oc Ja Oc Ja Oc Ja

Note. Adopted from “Labor Force Survey, April 2024” by Statistics Canada,

https://www150.statcan.gc.ca/n1/daily-quotidien/240510/cg-a002-eng.htm. Copyright by

Statistics Canada 2024.

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With the economic slowdown, businesses refrain from hiring new employees and

certain sectors even tend to shed the jobs. Due to high interest rates consumer spending

decrease and, businesses endure high borrowing costs which limit their ability to

invest/expand and might even lead to downsizing. These situations diminish new job

opportunities and prompt layoffs, causing rise in unemployment.

In 2023, manufacturing and construction sectors experienced largest gains in

employment and, many industries including wholesale and retail trade, real estate, finance,

insurance, rental and leasing shed jobs (The Canadian Press, 2023 December). In 2024

January, the labor market showed positive signs as the economy added 37,000 jobs, bringing

down the unemployment rate to 5.7 per cent. This slight decrease following 5.8 per cent in

December 2023 (Figure 4) was mostly driven by increased part-time work while nearly twelve

thousand full-time jobs were lost in January. Contradictory to Q4 2023, the rise in

employment was prominent in wholesale and retail trade as well as in finance, insurance, real

estate and, rental and leasing while hospitality and food services experienced the largest

decline in employment (Benchetrit, 2024).

During the rest of Q1 2024, unemployment continued to increase and in April it

remained steady at 6.1 per cent (Figure 4), owing to the steady employment rate of 61.4 per

cent in April following continuous six months decline. Rise in employment in April was

driven by part-time employment. Employment increased in professional, scientific and

technical services, accommodation and food services, healthcare and social assistance and,

natural resources (Statistics Canada, 2024). Therefore, we believe it is extremely important to

examine the quality of jobs created along with disparities across sectors and regions as certain

sectors continue to face significant disruptions, impacting job availability and wage levels.
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Growth in average hourly wages

Despite the unfavorable trends in unemployment, the average hourly wages grew

rapidly at a 4-5 per cent annual pace, as employees seek compensation for high inflation.

According to The Canadian Press (2024 January), in Q4 2023 average hourly wage rose 4.8

per cent from year ago and, Benchetrit (2024) mentioned in Q1 2024 it rose to 5.3 per cent.

This continuing trend reflects Canadians trying to regain the lost purchasing power. Economic

specialists however state that the demand-supply balance in the labor market is moving

towards more in favor of businesses in wage negotiations, rather than employees (The

Canadian Press, 2023).

Inflation

Despite the concerns about inflation, Canada’s annual inflation rate dropped to 3.1 per

cent in November 2023 (The Canadian Press, 2023 Dec) and continued to drop to 2.9 per cent

in January 2024 (The Canadian Press, 2024 Feb). Even though it is yet to reach the target

level of 2 per cent, the declining trend is reported amid a broad-based slowdown in price

growth (The Canadian Press, 2024 Feb). Even after this, there are inflationary pressures

resulting from supply chain disruption, rising energy prices, and the demand for increasing

wages. High inflation destroys the purchasing power and leads to economic instability. The

Bank of Canada’s decision on interest rates cut is important in addressing inflation dynamics

while supporting economic growth (Benchterit, 2024).

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Figure 5

Monthly Inflation Rate 2019 - 2024

Monthly Inflation Rate 2019-2024

9.0%
7.0%
5.0%
Percentage

3.0%
1.0%
-1.0%
19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22 23 23 23 23 24 24
20 r 20 l 20 t 20 20 r 20 l 20 t 20 20 r 20 l 20 t 20 20 r 20 l 20 t 20 20 r 20 l 20 t 20 20 r 20
n n n n n n
Ja Ap Ju Oc Ja Ap Ju Oc Ja Ap Ju Oc Ja Ap Ju Oc Ja Ap Ju Oc Ja Ap

Note. Adopted from “Monthly inflation rate in Canada 2019-2024” by Statista, https://www-
statista-com.eu1.proxy.openathens.net/statistics/1319023/monthly-inflation-rate-canada/,
Copyright by Statista 2024.

Government Actions – Monetary and Fiscal Policies

Monetary Policies on Interest Rates

The Bank of Canada maintained its regular interest rate at 5 per cent from July 2023 to

5th June 2024, the highest since 2001 (Benchetrit, 2024). This has decreased consumer

spending and business investment, leading to a slowdown in economic activity. The increases

in the rates of mortgages have particularly affected household finances, which further resisted

consumer spending.

The latest interest rate cut on June 05th from 5 per cent to 4.75 per cent, the first ever

rate cut since March 2020, in response to the rising pressure due to inflation and low

economic growth is a classic example of how monetary policies are used by the government

influence economic activity. By lowered rates, the BoC aims to stimulate economic growth
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by making borrowing cheaper and encouraging spending and investment. the recent history

of interest rates, including aggressive rate hikes and the current shift to a rate cut reflect the

central bank’s response to changing economic conditions, in an effort to avoid undesired

impacts on the economy (Benchetrit, 2024).

Figure 6

Bank of Canada Interest Rate

Note. From “Banks of Canada cuts interest rates to 4.75%” by CBC News,

https://www.cbc.ca/news/business/bank-of-canada-key-interest-rate-june-5-1.7225076,

Copyright by CBC News 2024.

The rate cut offers people a certain level of relief, reducing monthly mortgage

payments and potentially save money for other expenditures. This again can lead to

increased consumer spending which stimulates the economy. The rate cuts have a

significant impact on homeowners, particularly those with variable rate mortgages as lower

interest rates can ease the financial burden on households. This will potentially stabilize the
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housing market and release the burden of unaffordable mortgage payments and its

relatively undesirable outcomes (Benchetrit, 2024).

The real GDP growth for the Q1 2024 was weaker than expected (1.7%)

(Benchetrit, 2024). Slower economic growth increases the likelihood of rate cuts as the

central bank seeks to prevent the economy from stalling and possibly slipping into

recession. Lower interest rates encourage consumer spending and business investments

hence boost the GDP to reach the potential. Figure 7 shows the real GDP growth

projection.

Figure 7

Real GDP Growth Projection

Real GDP Growth projection

2.75
2.25
1.75
1.25
0.75
Percentage of GDP

0.25
-0.25 2023 2023 2024 2024 2024 2024 2023 2024 2025
Q3 Q4 Q1 Q2 Q3 Q4
Budget -0.3 1.1 1.9 2.3 2.5 2.5 0.3 1.5 2.3 NaN NaN
2023-
(Febraury
2023 Sur- Periods
vey)
September 0.2 0.1 -0.3 0.8 1.4 2.2 1.1 0.4 2.2 NaN NaN
2023 Sur-
vey

Budget 2023-(Febraury 2023 Survey) September 2023 Survey

Note. Adopted From “Economic and Fiscal Overview” by Budget Canada,

https://www.budget.canada.ca/fes-eea/2023/report-rapport/overview-apercu-en.html#a5

Copyright at Budget Canada 2024.

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Policies to control inflation

Inflation control is a primary objective of any central bank's monetary policy. The

Bank of Canada is confident in achieving its 2% inflation target as per the current trend.

The decrease in the inflation rate to 2.7% in April (Figure 5) and the favorable status of

core inflation measures have backed the recent rate cut decision, aligning with the goal of

price stability (Benchetrit, 2024).

The timing and the amount of rate adjustments depend on how the financial conditions

and inflation dynamics take shape. Fiscal policy measures, such as targeted investments in

infrastructure and social programs, can complement monetary policy actions and support

long-term economic growth.

Policies on Exports and Trade

The Canadian economy has benefited a lot from the spending trends in the U.S., which

increased exports and supported economic growth (The Canadian Press, 2024 February).

However, Canada’s reliance on exports exposes it to external risks, like trade tensions and

fluctuations in global demand. This can be minimized by diversifying export markets and

improving competitiveness through innovation and productivity.

Recommendations for addressing the weak economic performance

Based on our understanding on the macroeconomic theories and references used,

following recommendation can be implemented for addressing the Canadian economy's weak

performance in 2023

Balanced Monetary Policy

We believe the Bank of Canada should think of more gradual interest rate adjustments

to balance inflation control and economic growth. If the Bank of Canada will provide
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information about future monetary policy changes, it could help businesses and consumers to

plan accordingly, which can prevent negative reaction to the policies made by the bank.

Fiscal Policy Measures

To stimulate businesses that are affected by layoffs the most, some fiscal policies

could be implemented like infrastructure projects that can create immediate job opportunities.

Another that can be done is providing financial or legal support for small and medium-sized

businesses, which are significant for generating jobs and thus the economic stability.

Addressing Inflation

Government can invest in enterprises that are related to the supply chain to reduce

costs. Reanalyze and take off regulations and policies that may be unnecessarily increasing

costs of businesses and consumers such as taxes on some products or services.

Promoting Exports

Find new markets for Canadian products overseas by strengthening trade agreements

that can boost exports and stimulate the economy. From the other side, provide incentives for

businesses to introduce their goods and services abroad and engage in the exporting process

that helps to enhance the overall economy. Diversifying export markets and improving

competitiveness through innovation and productivity is also a recommended.

Social Safety Nets

The government must have social programs that can protect the most vulnerable parts

of society during hard times like pandemics, economic downturns that ensure more inclusive

recovery.
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Implementation strategy

For implementing the suggestions mentioned above, the government can collaborate

with the private sector for more effectiveness. Also creating and adjusting mechanisms that

continuously evaluate and monitor effectiveness of the policies is a crucial element of success

and sustainability of the results.

Conclusion

The macroeconomic case analysis of “Canadian economy not in recession, but 2023

was one of its weakest recent years”, furthered by additional references to understand the

dynamics of the Canadian economy, paved the way to understand the concepts and theories

learnt in a practical context. Real GDP growth, inflation, interest rates, unemployment and

monetary and fiscal policies connectivity in the context of macroeconomy was well

understood during this case study. The team was able to provide certain recommendations

based on the improved understanding.

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References

The Canadian Press. (2024, Feb 29). Canadian economy not in recession, but 2023 was one of

its weakest recent years. CBC News. https://www.cbc.ca/news/business/canada-gdp-

q4-2023-1.7129323

Benchetrit, J. (2024, Feb 09). Canada's economy added 37,000 jobs in January as

unemployment declines to 5.7%. CBC News.

https://www.cbc.ca/news/business/labour-force-survey-january-1.7110161

Benchetrit, J. (2024, June 05). Bank of Canada cuts key interest rate to 4.75%. CBC News.

https://www.cbc.ca/news/business/bank-of-canada-key-interest-rate-june-5-1.7225076

The Canadian Press. (2023, Dec 1). Cracks in job market grow as BoC succeeds at slowing

economy to a near halt. CTV News. https://www.ctvnews.ca/business/cracks-in-job-

market-grow-as-boc-succeeds-at-slowing-economy-to-a-near-halt-1.6668733

The Canadian Press. (2024, Jan 31). Economic bounce back at the end of 2023 could push

back rate cuts, economists say. CTV News.

https://www.ctvnews.ca/business/economic-bounce-back-at-the-end-of-2023-could-

push-back-rate-cuts-economists-say-1.6749435#:~:text=A%20preliminary

%20estimate%20suggests%20real,magnitude%20in%20the%20third

%20quarter.&text=That%20would%20bring%20economic%20growth,the%20Bank

%20of%20Canada's%20forecasts

Statistics Canada. (2024, May 01). Gross Domestic Product by Industry: Province and

Territories, 2023. Statistics Canada. https://www150.statcan.gc.ca/n1/daily-

quotidien/240501/dq240501a-eng.htm

IBISWorld. (2024). GDP of Canada. IBIS World. https://www.ibisworld.com/ca/bed/gdp-of-

canada/19/
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Statistics Canada. (2024, May 10). Labor force survey, April 2024. Statistics Canada.

https://www150.statcan.gc.ca/n1/daily-quotidien/240510/dq240510a-eng.htm

Budget Canada. (2023, Nov 23). Economic and Fiscal Overview. Budget Canada.

https://www.budget.canada.ca/fes-eea/2023/report-rapport/overview-apercu-

en.html#a5

Statista. (2024). Monthly inflation rate in Canada 2019-2024. Statista. https://www-statista-

com.eu1.proxy.openathens.net/statistics/1319023/monthly-inflation-rate-canada/

Statistics Canada. (2023). A snapshot of how inflation is affecting Canadians. Statistics

Canada. https://www.statcan.gc.ca/o1/en/plus/3096-snapshot-how-inflation-affecting-

canadians