Canada Beats Forecasts With 2.6% GDP Growth to End Last Year

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(Bloomberg) — Canada’s economic growth accelerated last quarter and momentum carried into the start of this year as the central bank’s forceful rate cuts boosted household spending.

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Advance data suggest gross domestic product rose 0.3% in January, following a 0.2% expansion in December that ended the fourth quarter with a stronger-than-expected increase at a 2.6% annualized pace, Statistics Canada said Friday. 

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That’s the strongest growth since the second quarter, and a pickup from an upwardly revised 2.2% increase between July and September.

The Bank of Canada, which had been cutting interest rates aggressively last year to strengthen the economy, expected fourth-quarter GDP to grow 1.8%, while a median estimate from economists in a Bloomberg survey saw 1.7%. 

The data may bolster a case for the central bank to pause its easing cycle at its next meeting March 12. But US President Donald Trump’s tariff threats, including 10% on Canadian energy and 25% on other goods set to take effect Tuesday, loom over the bank’s decision-making.

The central bank had said they wanted better growth in order to “stick” the soft landing for Canada’s economy — and the broad-based increase in household consumption suggests the Bank of Canada’s easing campaign has successfully accelerated growth.

The bank had cut interest rates by half a percentage point at its October and December meetings, suggesting more stimulus is likely to work its way through the economy. Friday’s data points to a smaller gap between output and potential growth.

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In the fourth quarter, solid growth was driven higher household spending as well as increased exports and business investment, especially residential construction. Household consumption rose 5.6% — the most since the second quarter of 2022.

Policymakers slowed down the pace of reductions to borrowing costs in January and removed any guidance about future decisions due to the uncertainty posed by Trump’s tariff threats. 

Taking away those threats, however, the Canadian economy appears to have found its footing over the past several months. The job market has added more positions than economists expected. Inflation has stayed under at or under the 2% target. Consumption has recovered and housing market activity has reignited.

If Trump follows through with tariffs on Tuesday, Prime Minister Justin Trudeau plans to retaliate with levies on $107 billion worth of US goods. Household consumption categories most dependent on imports from the US include new trucks and sport utility vehicles, outdoor recreation durables, and jewelry and watches.

Bank of Canada Governor Tiff Macklem said last week that such a tariff war would plunge Canadian output by nearly 3% over two years and “wipe out growth” during that period. Demand for Canadian goods in the US would crater, exporters would cut production and jobs, prices for products imported from the US would surge, and consumers and businesses would spend less.

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The threat of tariffs may have already influenced some business decisions. There were widespread withdrawals from non-farm inventories in the fourth quarter, led by manufacturing and motor vehicle drawdowns.

With Canada’s population growth already slowing due to tougher immigration rules, GDP per capita rose 0.2% in the fourth quarter, after falling 0.1% in the previous quarter. That’s the largest rise since the first quarter of 2023. For the rest of 2023 and much of last year, Canada experienced declines in per-capita growth due to record highs immigration and population increases.

In 2024, GDP per capita fell 1.4%, following a decline of 1.3% in 2023.

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