Canada’s GDP came roaring back in the first quarter with consumers doing much of the heavy lifting.

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Consumers underpin Canada's GDP blowout: What the economists are saying Back to video

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Statistics Canada reported on May 31 that gross domestic product rebounded 3.1 per cent annualized in the first quarter, up substantially from a slight contraction of -0.1 per cent in the fourth quarter of 2022.

The result beat analyst forecasts for 2.5 per cent growth and the gross domestic product rebounded 3.1 per cent of 2.3 per cent.

On a monthly basis, GDP in March was flat compared with analysts’ calls for a pullback of 0.1 per cent month over month. However, Statistics Canada said in a flash estimate it expected April GDP picked up some momentum and will come in at 0.2 per cent.

Household consumption “underpinned” the strong quarterly result, said economists at Desjardins Economics. Consumer spending increased 5.7 per cent annualized from the previous quarter as Canadians spent more on cars and clothing. Spending on travel also increased, up 6.8 per cent in the first quarter, compared with a 3.3 per cent decrease in the previous quarter.

While economists acknowledged the surprising staying power of the consumer, Charles St-Arnaud, chief economist at Alberta Central, said in note some of the data pointed to signs of weakness, among them a slowing savings rate.

The household saving rate was 2.9 per cent in the first quarter of 2023, down from 5.8 per cent at the end of 2022 and approaching the pre-pandemic level, which averaged 2.1 per cent in 2019, Statistics Canada said.

“Households could be using the saving accumulated during the pandemic to support their spending,” St-Arnaud said.

Here’s what economists are saying about the GDP results:

Randall Bartlett, Desjardins Economics

“Q1 real (minus inflation) GDP growth outperformed the Bank of Canada and consensus calls, underpinned by broad-based strength in the quarter. Further, the data so far in April suggest the second quarter of 2023 could come close to the one per cent annualized advance the Bank of Canada projected back in April. Indeed, while we pencilled in a flat print in our recent Economic and Financial Outlook, the flash estimate for April suggests it could come in stronger.

“For the Bank of Canada, this is the just the latest data point reinforcing the strength of the Canadian economy, particularly the consumer. While we’ll get more information at next week’s rate announcement, we think today’s data substantially increases the odds of another rate hike.”

Charles St-Arnaud, Alberta Central

“Growth in the first quarter was much stronger than expected, showing a strong start to 2023. The details show that the strength was mainly the result of strong consumer spending and exports. However, most of the strength was seen in January and growth momentum has slowed meaningfully since. As such, early estimates point to growth slowing to below one per cent quarter over quarter in the second quarter.

“Disposable income declined in the first quarter due to a decrease in government transfers. As a result, once adjusted for inflation, real disposable income declined, leading to a deterioration in purchasing power. As such, real disposable income is below its pre-pandemic trend. In addition, the saving rate dropped to its lowest level since the start of the pandemic, suggesting that households could be using the saving accumulated during the pandemic to support their spending. With inflation remaining high and interest rates having increased significantly, households continue to face continued pressures on their purchasing power and finances.

“We expect economic activity to remain weak in the first half of 2023 as the sharp increases in interest rates continue to take their toll on economic activity, especially residential investment and consumer spending. The strength in consumer spending will depend on households’ willingness to spend the money saved during the pandemic and the strength of the labour market.”

Matthieu Arseneau and Alexandra Ducharme, National Bank of Canada

“The performance of consumer spending was eye-catching, with growth of 5.7 per cent, the strongest in three quarters. We knew that consumers had assets at their disposal, notably a savings rate that remained above its pre-pandemic level and thus an accumulation of savings that seems to have been put to good use.

“However, we need to put things into perspective. Like us, the central bank probably underestimated the economy’s potential GDP, which is currently being boosted by an unprecedented demographic boom. If the unemployment rate and falling job vacancy rates are any guide, this growth does not seem to be pushing the economy further into excess demand.

“In light of this morning’s data, we do not change our view that the economy will slow significantly over the next four quarters as interest rate hikes continue to weigh on the economy.”

Nathan Janzen, RBC Economics

“Household disposable incomes fell for the first time since Q4 2021 – down 1% (not annualized) in Q1. Strong labour markets are still supporting household purchasing power, but a number of ‘one-time’ government transfers in Q4 last year weren’t repeated in Q1 and the saving rate fell back close to pre-pandemic levels at 2.9%.

“But the larger surprise was the advance estimate that April GDP rose 0.2 per cent despite a likely significant temporary drag from the federal workers strike that will reverse in May. Advance GDP estimates have been revision prone, but that is pointing to substantially firmer-than-expected momentum early in Q2.

“The jump in GDP early in Q2 means output is potentially running substantially above prior expectations. Labour markets have remained very firm, and inflation also surprised on the upside in April. There are still early signs that cracks are forming in the economic backdrop – job vacancies are declining, consumer delinquency rates are edging higher and households are saving less.”

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