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Special Report

Canada GDP Research Brief

September 2023

Central Bank Likely to Hold Interest 
Rates Amid Economic Contraction

GDP drifted lower in the second quarter. Canada’s GDP contracted 0.2 per cent annualized between April and June, which was well below market expectations, as rising interest rates began to impact the broader economy. On a quarterly basis, household spending decelerated sharply, with growth slowing to 0.2 per cent from 4.7 per cent recorded in the previous quarter. The housing market remained weak, as residential investment registered its fifth consecutive quarterly decline. Although temporary factors that weighed on economic activity in the second quarter, including the PSAC strike in April and wildfires throughout the summer, will likely fade, elevated borrowing costs are expected to continue exerting downward pressure on interest rate-sensitive sectors. Consequently, consumer spending will likely remain soft, and the unemployment rate is expected to rise further amid declining job vacancy.

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