Ottawa – Real gross domestic product (GDP) rose 0.8% in the first quarter, after posting no change in the previous quarter. Favourable international trade and growth in household spending were moderated by slower inventory accumulations as well as declines in housing investment and business investment in machinery and equipment. Final domestic demand increased 0.7% in the first quarter of 2023 after remaining flat in the fourth quarter of 2022.
Exports rise, imports edge up
Exports of goods and services rose 2.4% in the first quarter of 2023, following a 0.5% increase in the fourth quarter of 2022. The increase in the first quarter was led by passenger cars and light trucks, unwrought gold, silver, and platinum group metals and their alloys, other crop products, and wheat.
Imports of goods and services edged up 0.2% in the first quarter of 2023, following a 3.3% decline in the fourth quarter of 2022. Higher imports of crude oil and crude bitumen led the increase, followed by pharmaceutical and medicinal products, and travel service expenses by Canadians abroad. These gains were largely offset by declines in imports of passenger cars and light trucks, unwrought gold, silver, and platinum group metals and their alloys, and clothing, footwear, and accessories.
Higher household spending spurs growth
After two quarters of minimal growth, household spending rose for both goods (+1.5%) and services (+1.3%) in the first quarter of 2023. Expenditures on durable goods (+3.3%) were driven by motor vehicles including new trucks, vans, and sport utility vehicles (+7.8%). Spending on semi-durables (+4.3%) was led by garments (+4.5%), while spending on non-durable goods (-0.2%) declined slightly.
Service spending picked up in the first quarter of 2023, led by food and non-alcoholic beverage services (+4.4%), and alcoholic beverage services (+6.5%). Meanwhile, travel was on the rise with expenditures by Canadians abroad up 6.8% in the first quarter, compared with a 3.3% decrease in the previous quarter.
Housing investment continues to decline
Coinciding with higher borrowing costs and slowing mortgage borrowing, housing investment fell 3.9% in the first quarter of 2023, the fourth consecutive quarterly decrease. The decline in investment was widespread—as new construction (-6.0%), renovations (-2.1%), and ownership transfer costs (-1.5%), which represents resale activity, were all down. The decline in new construction was observed in every province and territory except Yukon.
Business investment in machinery and equipment declines
Business investment in machinery and equipment fell 2.5% in the first quarter of 2023, the third consecutive quarterly decline. The decrease was led by lower spending on medium and heavy trucks, buses and other motor vehicles, and aircraft and other transportation equipment.
The declines in business investment were partly offset by increased investment in engineering structures by the oil and gas industry and higher business investment in intellectual property products, largely stemming from software.
Inventory accumulation slows
Lower inventory accumulations in the first quarter applied downward pressure on GDP growth, the smallest change in inventories since the fourth quarter of 2021. Declines in farm inventories as well as in the stock of durable goods, such as in motor vehicles, contributed to the limited inventory accumulation.
Terms of trade declines and gross domestic product implicit prices rise
The ratio of the price of exports to the price of imports—the terms of trade—fell 2.7% in the first quarter of 2023, primarily because of a 3.4% decline in prices of exported goods. This was the third consecutive quarterly decrease in the terms of trade, as prices of exported goods continued to fall after reaching a record high in the first two quarters of 2022.
The GDP implicit price index—a measure of economy-wide prices—edged up 0.2% in the first quarter of 2023, primarily because of higher household expenditure prices. The price index for household final consumption expenditure (excluding food and energy) rose 1.0% in the first quarter, the 11th consecutive quarterly increase, as inflation remained elevated above the Bank of Canada’s target.