Ottawa/IBNS: Amid weak business and consumer spending as well as lower exports, the Canadian economy shrank in the third quarter, Statistics Canada reported.

The gross domestic product report released by Statistics Canada revealed the contraction of the economy on an annualized basis by 1.1 percent.

A decrease in international exports and slower inventory accumulation by businesses was partially offset by increases in government spending and housing investment, the federal agency said.  

The federal agency’s revised reading in the second quarter for real gross domestic product noted that the economy did not shrink, but rather grew 1.4 per cent on an annualized basis.

While the decline in the third quarter is essentially offset by growth in the second quarter, economists reacting to the new data say the trend is clear and the economy is weakening

“The big picture is that the Canadian economy is struggling to grow, yet managing to just keep its head above recession waters,” Bank of Montreal (BMO) chief economist Douglas Porter reportedly wrote in a client note.

The federal agency also said that led by apartment construction, new housing construction in the third quarter increased for the first time since early 2022.

The interest rate hikes by Bank of Canada have been putting pressure on consumer and business spending as they both face higher borrowing costs.

Consumer spending continues to be flat, Thursday’s report shows, for a second consecutive quarter.

With disposable income surpassing the rise in nominal spending, Households are saving more.

According to Statistics Canada’s report, as the labour market weakened, government transfers, namely the doubling of the GST rebate in the summer, propped up incomes.

On the other hand, business capital investment in the third quarter fell by two percent.

According to the preliminary estimate of Statistics Canada for real GDP, the economy grew by 0.2 percent in October, following a 0.1 percent increase in September.

After choosing to hold its key rate steady at five percent at its last two announcements, the central bank is set to announce its next interest rate decision on Dec 6.

With slowing of inflation, and the weakening of the economy, Economists expect the Bank of Canada to remain on hold.

“Today’s mixed report reinforces the point that the Bank is done hiking rates, but doesn’t really advance the cause for rate cuts, as the economy isn’t showing signs of further deterioration early in Q4,” Porter said.

(Reporting by Asha Bajaj)