Gross Domestic Product
GDP in simple terms is the total value of goods and services produced in a specific time frame. It is the main measure used to evaluate how healthy our economy is.
This number is often used by the Bank of Canada when determining whether interest rates should rise, fall, or remain the same.
When GDP growth increases, it’s an indicator that our economy is holding strong which may result in an increase to interest rates. This is because when the economy is strong, it often coincides with increases to inflation, which the Bank of Canada is aggressively trying to prevent.
Contrarily, when GDP is in a decline, interest rates may decrease essentially to help stimulate the economy which is often done by promoting the purchasing of goods which creates more demand again.
Our GDP growth has remained steady this year which has indicated a well diversified and resilient economy. However, recently we have seen a mild annualized decline of 0.2%. This indicates that the rate hikes we’ve had this last year are beginning to cool GDP growth and the labour markets, with inflationary pressures likely following.
The Bank of Canada will continue to watch GDP data released to see if economic momentum is softening enough to ensure that inflationary pressure will trend lower and incorporate this into their future decisions.