Quebec’s economy contracted 1.9% in the second quarter, a sharper decline than the Canadian average of -0.2%.
This abrupt decline is not a surprise as it was preceded by several signs of weakness, commented Desjardins economist Hélène Bégin. “Although it is too early to tell, this could be the start of a period of economic contraction that, according to our scenario, is likely to last until early 2024,” he said.
Quebec’s economy has performed well so far, with GDP growth of 1.9% in the final quarter of 2022 and an increase of 1.4% in the first quarter of the current year.
Inflation and rising interest rates are beginning to impact household spending. Consumer spending has fallen for the first time since the beginning of the pandemic, emphasizes Daren King, economist at the National Bank. “The annual decline is 2% overall, or 2.8% for services and 1.1% for goods.
For durable goods, which are often purchased on credit, the decline reached 7.5% in the second quarter.
Investment in residential real estate has declined, as has business investment. A 10.9% increase in exports and a 5.1% decline in imports capped the decline in Quebec’s economy in the second quarter.
The household savings rate rose from 6.8% in the first quarter to 8.2% in the second quarter. This cushion, as well as a debt level below the Canadian average, puts Quebec in an enviable position, according to the National Bank, which predicts not a recession during the year but “growth that will fluctuate around the neutral point” in the next few months .
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