Canadian GDP rises for 3rd consecutive year: Statistics Canada

Andrew Grantham, Senior Economist, CIBC Capital Markets, said the Canadian economy rebounded in Q4 from its mid-2023 slump, however the detail of today’s data suggests that domestic demand remains weak. GDP rose by an annualized 1.0% in Q4 (consensus +0.8%), following a smaller than initially reported 0.5% contraction in the prior quarter.

“Net trade was the main contributor to growth, with exports rising by 5.6% but imports declining. Final domestic demand was down on the quarter, with consumer spending growth remaining only modest (+1.0%) and government spending and business investment declining. While household consumption on durable goods was strong thanks to an easing of previous supply issues in the auto industry, spending in other areas was much more muted,” he said.

“The quarter ended on a weaker note than expected, with December GDP showing only a flat reading (consensus +0.2%). However, that was largely due to a decline in public administration thanks to strike activity in Quebec, and a rebound there appears to be supporting growth in January. The advance estimate for the first month of 2024 pointed to a healthy 0.4% increase in GDP.

“While the GDP print for Q4 was above the flat reading expected by the Bank of Canada, and Q1 is also tracking stronger than their prior expectations, growth appears to have been driven largely by an easing of previous supply constraints helping exports and car sales, rather than necessarily an improvement in domestic demand. Because of that, and given that inflation is actually running below the Bank’s January MPR projections, today’s data doesn’t change our forecast for a first interest rate cut in June.”

James Orlando, Senior Economist, TD Economics, said the Canadian economy showed some life in the final quarter of 2024

“Consumers, who have been paring back spending for much of the year, were busy driving around in their new cars and filling shopping malls during the holiday season. We also saw strong demand for exports, as the benefits of a surging U.S. economy spilled over into Canada. At the same time, business investment and government spending were a drag on growth, with the latter reflecting some mean reversion following the big spending outlays to fight wildfires over the summer,” he said.

“A return to growth in the fourth quarter was widely expected, following two quarters of effectively no growth in the country. While today’s report came in better than consensus (+0.8% q/q) and much better than what the BoC was thinking (0% q/q), the narrative on the Canadian economy remains the same: High interest rates are weighing on economic growth. Stripping out international drivers, the economy contracted, while GDP per capita has now declined in five of the last six quarters. The BoC has recognized this weakness in recent commentaries, but it is patiently waiting for inflation to follow suit. We think the wheels are in motion for this to come through the data in the coming months and have penciled in the first BoC rate cut for June.”

Douglas Porter, Chief Economist with BMO Economics, said Canada’s economy is just grinding forward, aided and abetted by solid U.S. spending trends, which are supporting exports.

“There’s no debate that growth is nevertheless anemic, especially when cast in per capita terms (down more than 2% y/y). Business investment is notably weak. Even so, this changes little for the Bank of Canada, as conditions don’t appear to be worsening so there’s no urgency to cut rates. With growth still well below potential, disinflationary pressure will continue, but it will require ongoing patience,” said Porter.