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Large GDP revisions from StatCan raise questions about past federal spending and monetary policy

Canada’s economic data is under increasing scrutiny following recent GDP revisions, which raised growth figures by a cumulative 1.3 percentage points from 2021 to 2023, sparking concerns among experts.

Statistics Canada revisions

With over $300 billion in government stimulus in 2021, based on initial figures showing weaker economic growth, experts are now questioning the accuracy of these early estimates.

The recent revisions from Statistics Canada indicate the economy grew faster than initially thought, raising concerns about how much reliance can be placed on data that may change down the road—especially when it influences critical fiscal and monetary decisions, including government spending and quantitative tightening/easing.

November GDP revisions raise concerns among stakeholders

Earlier this month, Statistics Canada released revised GDP figures from 2021 through 2023, showing a significant upward swing in the data.

“The past three years have been revised up by a cumulative 1.3 percentage points,” says Douglas Porter, Chief Economist at BMO.

The revised GDP growth for 2023 is 1.5%, up from 1.2%; for 2022, it’s 4.2%, up from 3.8%; and for 2021, it’s 6.0%, up from 5.3%.

“The firmer growth makes the per-capita story a little less painful over the past three years,” Porter noted. “The 2023 level is now exactly in line with 2019 (instead of falling 1.3% over that period). Still bad, but less horrendous.”

Statistics Canada released revised GDP data across four different periods: monthly by industry, monthly, quarterly, and annually. Each revision incorporates additional data, with the annual revisions typically bringing the most significant changes due to their comprehensive nature.

In an email to Canadian Mortgage Trends, Statistics Canada explained its revision process: “Statistics Canada regularly updates its figures for gross domestic product (GDP)…These more comprehensive and detailed data sets include all the annual business surveys as well as administrative sources, such as public accounts for all levels of government and business and personal tax data. “

While revisions to GDP data are not uncommon, experts are concerned by a difference of nearly a year’s worth of GDP growth, especially since both the federal government and the Bank of Canada rely on these estimates to make critical spending and policy decisions.

“All of this means the Canadian economy was actually…stronger than previously reported, and calls into question whether we need ‘jumbo-sized 50-bps rate cuts’,” says economic commentator Ryan Sims. “If StatCan missed effectively an entire year of GDP growth over the last three years, what else have they missed? Should we expect inflation and employment to be revised by a large margin as well?”

Pandemic-related factors contributed to unusually large 2021 GDP revisions

Statistics Canada releases and revises GDP data in four instalments: monthly GDP by industry, monthly GDP release 60 days after the month (MGDP), quarterly GDP by Income and Expenditure 60 days after the quarter (QGDP), and the final annual supply and use tables (SUTs) update.

As StatCan explains, “SUTs are compiled 34 months after the reference year, using data from annual surveys and administrative sources to create the most comprehensive and detailed statistics.” These updates, conducted 34 months after the year in question, help explain the unusually large discrepancy in the 2021 GDP revision.

“The update to the 2021 GDP growth rate is larger than usual,” the statistics agency told CMT. “This is due to a more complete picture of the pandemic’s impact, as all data sets have now been incorporated. The larger-than-normal revision is attributed to unprecedented events, including supply chain disruptions and increased government support for businesses and households during the pandemic recovery.”

In response to COVID-19, the Canadian government injected over $300 billion into the economy, including relief programs like the Canadian Emergency Wage Subsidy (CEWS) and the Canadian Emergency Response Benefit (CERB).

Data revisions not unique to Canada, U.S. has led the way

While such sizeable data revisions are unusual, they aren’t unique to Canada. In fact, the United States has been revising its economic data long before Canada decided to follow suit.

“It’s just amazing that, over the years, whatever the Americans do, we do, and lo and behold, the Americans did GDP revisions right before StatCan decided to do theirs,” Bruno Valko, VP of National Sales at RMG Mortgages, told CMT

Through the end of 2023, real GDP growth in the U.S. was revised up a cumulative 1.2%, with upward revisions to growth in each 2021-2023.

“With the influence the U.S. has on our economy and given the implications, perhaps Statistics Canada used the revised U.S. numbers to adjust our GDP upward as well,” he added. “I’m not sure that is the case, I’m only speculating that it might be.”

For context, Valko compiled data on how the Bureau of Labor Statistics (BLS) has been making sweeping revisions to its job numbers, most notably in 2023 and current year-to-date adjustments.

BLS Revisions as a percentage of headline figure
Source: Provided by Bruno Valko, data from www.bls.gov 

Valko mentioned that these major revisions to job numbers are particularly “frustrating” for those in the mortgage business.

“When the headline number comes out [stating] 254,000 jobs [were added]…bond yields and Treasury yields in the West went up,” he said. “And of course, Canada follows. And it’s frustrating because [you’re left wondering] is that a real number?”

That said, Valko doesn’t believe these GDP revisions going back to 2021 have major consequences for the Bank of Canada at this stage.

“I think the Bank of Canada is focused on looking forward and assessing whether they’re behind the curve in terms of interest rates,” he said. “Our economy is struggling, and while you can revise 2021, 2022, and 2023, what about now?”

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Last modified: November 18, 2024

Brett Surbey is a corporate paralegal and freelance writer based out of northern Alberta. His verticals focus on personal and business topics such as finance, corporate law, personal finance, and business development. His work has appeared in Forbes Advisor Canada, Publishers Weekly, Industry West Magazine, and various academic journals. He lives with his wife and their two children.

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