Quebec: First-Quarter Real GDP Growth Slows to 1.7%
- Real GDP growth dipped only slightly in the first quarter of 2023, edging down to an annualized 1.7% from 1.9% in the fourth quarter of 2022, well below Canada's first quarter growth of 3.1%.
- Final domestic demand was more solid than the previous quarter (+0.6%), rising 1.5% in the first quarter of 2023.
- Household final consumption expenditures picked up in the first quarter. Spending on services and goods rose 4.8% and 7.3% respectively, following gains of 2.5% and 8.6% in the fourth quarter of 2022.
- Residential investment fell for the fourth successive quarter, this time by 14.8%, and was pulled lower by construction spending (-18.3%), renovation (-7.4%) and property transfer costs (-28.1%).
- Business investment rebounded in the first quarter of 2023 on the back of an 8.5% jump in investment in non-residential structures. Investment in machinery and equipment has been declining since mid-2022 and fell 3.9% in the first quarter of 2023.
- Business inventories rose again in the first quarter and helped boost economic growth.
- However, international trade was a drag on real GDP growth. Total exports were down 5.6% in the first quarter. The 11.8% drop in international exports didn't fully offset the 4.1% increase in exports to other provinces. Meanwhile, total imports dipped by just 2.4%. As a result, Quebec's trade deficit widened to 26.5 billion 2012 dollars.
These first quarter results are only slightly more positive than expected. Quebec's economy has managed to keep up a good pace of growth thanks to higher consumer spending and increased business investment. Strength in household spending came at the expense of the savings rate, which plummeted from 12.2% in Q4 2022 to 6.3% in Q1 2023. Household income—which had been inflated by the Quebec government's financial support at the end of 2022—also dropped. Although consumers now have less breathing room, the savings rate remains quite high and well above the nationwide rate of 2.9%.
Amid elevated interest rates and high inflation, consumer spending is likely to slow before long. The housing sector—and new construction in particular—continues to be hobbled by the more challenging environment.
The decline in business investment took a bit of a breather in the first quarter. This is likely to be temporary, as businesses' deteriorating financial situations and weak confidence among SMEs add to the global economy's laundry list of challenges.
Although Quebec's economy has performed well until now, the coming quarters will be arduous. Consumer spending can't keep up this pace for long, and the skies are darkening for businesses. Furthermore, several major disruptions that occurred this spring, such as power outages and the ongoing wildfires, are impacting the population and economic activity. This could be the last positive print before more difficult times.
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