Economists had expected the economy to grow 1.9 per cent on an annualized basis in the fourth quarter. (Getty Images) · shaunl via Getty Images
Canada’s economy grew 2.6 per cent in the fourth quarter of 2024, Statistics Canada said on Friday, blowing past expectations as real gross domestic product (GDP) increased 0.2 per cent in December.
Economists had expected the economy to grow 1.9 per cent on an annualized basis, according to consensus estimates published by BMO Economics. On a monthly basis, economists expected real GDP to grow 0.3 per cent.
The growth also surpassed the Bank of Canada’s forecasts. The central bank expected real GDP to grow 1.8 per cent on a quarterly annualized basis, according to its latest Monetary Policy Report (MPR).
The increase in the fourth quarter was driven by higher household spending, as well as increased exports and business investments. Household spending increased 1.4 per cent in the quarter, the strongest growth since the second quarter of 2022.
Statistics Canada also revised up the third quarter growth rate from 1 per cent to 2.2 per cent. That means third quarter growth also surpassed the Bank’s forecast of 1.5 per cent.
“Canada’s economy showed some evident sparks of life in the final quarter of 2024 as it responded to lower interest rates and a sales tax holiday, but that flame could still be extinguished in 2025 if the country faces a tariff wall,” CIBC economist Avery Shenfeld wrote in a research note on Friday. With preliminary data suggesting GDP would grow 0.3 per cent in January, Shenfeld said “that all points to the fact that absent the tariff threat, there would be substantial grounds for optimism over 2025 prospects, and perhaps a good reason for the Bank of Canada to take a pause on rate cuts.”
“But Q1 will likely see a stall in capital spending due to tariff uncertainties, and a trade war could easily snuff out growth should Canada be hit with broad and significant tariffs,” Shenfeld wrote.
“That risk could dull market reactions to what was otherwise a better than expected report, and will have the central bank still mulling over a March rate cut if the tariff news goes the wrong way.”
TD senior economist James Orlando wrote in a research report on Friday that the GDP release “isn’t going to sway the BoC.”
“Today’s report seems to be telling a story of what could have been for the Canadian economy,” Orlando wrote.
“Yes, the report was strong. But [Bank of Canada Governor Tiff Macklem] is more concerned about risks on the horizon rather than what happened last year. The Bank’s own research shows huge downside risks to the economy should tariffs pass.”
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