Canada’s economy geared down at the end of 2022, growing at about half the pace of the previous quarter and setting the stage for a stall at the beginning of this year.

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Preliminary data suggest gross domestic product was flat in December as increases in retail, utilities and the public sector were offset by decreases in wholesale, finance and oil and gas industries, Statistics Canada reported Tuesday in Ottawa. That followed a 0.1 per cent gain in November, which matched economist expectations in a Bloomberg survey, and a 0.1 per cent increase in October.

Overall, the monthly gains point to annualized growth in the fourth quarter of 1.6 per cent, according to an initial estimate from the statistics agency. Though it will likely be revised, it’s down sharply from a 2.9 per cent pace in the third quarter, 3.2 per cent during April to June, and 2.8 per cent in the first three months of last year.

The numbers show that higher interest rates, which jumped 425 basis points since last March, are slowing economic activity and weighing on consumption. The lagged effects of the Bank of Canada’s aggressive tightening campaign are expected to drag growth to a halt this year, with economists seeing two quarters of shallow contraction in the first half of 2023.

That’s a key reason why Governor Tiff Macklem and his officials said this month they plan to hold the benchmark overnight lending rate at 4.5 per cent if growth and inflation evolve broadly in line with their outlook. While the 1.6 per cent growth in the final quarter is slightly stronger than policymakers forecast last week, signs of slowing demand are mounting.

In November, growth in services-producing industries was partially offset by a decline in the goods sectors, the agency said. Interest-rate increases continued to dampen activity for real estate agents and brokers, residential building construction, and legal services which have been trending downward since spring.

Construction dropped 0.7 per cent, with new construction of single detached homes and home improvement leading the decline. Accommodation and food services contracted 1.4 per cent on lower activity in bars and restaurants. Retail trade decreased 0.6 per cent, with the food and beverage subsector falling to its lowest level since April 2018.

The central bank expected fourth-quarter growth of 1.3 per cent annualized, while economists in Bloomberg surveys predicted a gain of 0.9 per cent. Official data for December and the fourth quarter will be released Feb. 28.

Based on initial estimates, Canada’s economy expanded 3.8 per cent in 2022, broadly in line the Bank of Canada’s estimate for a 3.6 per cent growth.

With assistance from Erik Hertzberg

Bloomberg.com