Can we shop our way out of a recession? Consumers in Canada are giving it their best shot.
The strong first-quarter growth in GDP that caught economists off guard was powered by two sectors, exports and consumer spending, with the latter rising 5.7 per cent on an annualized basis.
That growth was twice as fast as economists expected, and it pushed consumer spending to its highest share of GDP since records began in 1961.
South of the border, resilient consumers have been credited for helping stave off recession. But Canadian shoppers are outspending even their counterparts in the United States, where consumer spending rose 3.8 per cent.
None of this is good news for the Bank of Canada as it tries to cool inflation by discouraging people from buying stuff. Instead Canadians defied rate hikes and recession warnings to fork out for goods such as vehicles and services, including restaurants and hotels, at a frenzied pace.
The boom in services spending will have been particularly troubling to the bank. Governor Tiff Macklem warned in early May “the biggest upside risk to our inflation forecast is that services price inflation could be more persistent than we expect.”
Which is why some economists believe the bank isn’t done tightening. “This is just the latest data point reinforcing the strength of the Canadian economy, particularly the consumer,” wrote Randall Bartlett, an economist with Desjardins. The shopping spree “substantially increases the odds of another rate hike.”