Canadian Real GDP Increased Quarterly in Q4, Rounding Out a Year-Over-Year Gain in 2021

Statistics Canada (StatsCan) reported on Tuesday (3-1-22) that real gross domestic product (GDP) in Canada grew 1.6% in Q4 2021, following a 1.3% rise in Q3 2021. Real GDP posted a strong 4.6% growth in all of 2021, after the COVID-19 pandemic-induced decline (-5.2%) in 2020. Final domestic demand rose 0.7% in Q4 2021, after rising 1.7% in the previous quarter.

Growth in real GDP was driven by business investment in engineering structures (+3.5%) and home ownership transfer costs (+14.3%), which include commissions and land transfer taxes associated with home resale, and by an accumulation of inventories. Increases in international exports were overshadowed by larger increases in imports. Rising prices moderated growth in household final consumption.

Household disposable income was down -1.3% in Q4 2021, the second consecutive quarterly decline, primarily due to an -11.9% decrease in government transfers to households. Government transfers to households as a proportion of disposable income fell to 19.1% in Q4 2021, marking a return to pre-pandemic shares of less than 20%.

Continued easing of pandemic-related restrictions, despite the arrival of the Omicron variant late in the quarter, helped boost nominal household consumption by 1.3%. With less disposable income and higher expenditures, households were left with smaller net savings—$23.0 billion at quarterly rates—a level that, despite the notable decrease, was more than double that of the last quarter of 2019. Consequently, the savings rate dropped to 6.4% in Q4 2021 down from 9.0% in Q3, falling to single-digit territory in the latter half of 2021, after five consecutive quarters of savings rates in excess of 10%. The household savings rate is aggregated across all income brackets. In general, savings rates are higher for higher income brackets.