February 28, 2025
Canada’s gross domestic product in the fourth quarter expanded by 2.6 per cent on an annualized basis, surpassing widespread expectations, as a jump in consumer spending, business investments and exports lifted growth, data showed on Friday.
Analysts polled by Reuters had expected the GDP to grow by 1.8 per cent in annualized terms in the quarter ending December, similar to Bank of Canada’s predictions from last month.
The third quarter growth rate was revised to 2.2 per cent from 1 per cent earlier, Statistics Canada said, and added that on a month-on-month basis the economy in December expanded by 0.2 per cent, reversing the contraction seen in November.
This was mainly due to a healthy growth in retail sales and a sales tax break which started from mid of December, it said.
The monthly GDP figures are calculated by industrial output while quarterly figures are calculated by spending and expenditure.
An advance estimate shows that monthly growth would likely be 0.3 per cent in January.
Canada’s economy, which had been sluggish for a better part of last year, has shown signs of improvement lately as interest rates fell from over two-decade high levels from mid of last year.
The BoC has shrunk rates by 200 basis points from June to 3 per cent in January in its bid to prop up economic growth, especially as reducing immigration numbers and an impact of widespread tariffs from the U.S. pose major risk to growth.
Household spending, which accounts for more than half of the total GDP, rose 1.4 per cent in the fourth quarter, registering its biggest jump since the second quarter of 2022, Statscan said.
Residential construction rose by 3.9 per cent, its largest quarterly rise since the Q1 2021, while business investments, which has been mostly a laggard for the last 11 quarters, posted a growth of 0.7 per cent in Q4, led by a 4.2 per cent increase in investment in machinery and equipment.
On a per capita basis, real GDP rose 0.2 per cent in the fourth quarter, the second increase in the last seven quarters.
Canada’s economy is at an uncertain point where its continued growth or a possible slowdown depends on the extent of tariffs that the U.S. President Donald Trump decides to impose.
The BoC has said that it might have to cut rates to support the economy in the event of sweeping tariffs.
However, a healthy fourth quarter GDP is likely to help bank to pause the rate cutting cycle. Before the data was released, currency markets were betting for over 50 per cent chance of a 25 basis point rate cut next month.
