Canada’s GDP growth in the fourth quarter defies expectations

“The Canadian economy gained momentum in late 2024, driven primarily by strong domestic demand and rising business sales—defying skepticism about consumer resilience.

Exports also performed well, thanks to a strong oil and gas sector. Canada’s most reliable asset during turbulent times remains our natural resources sector.

Looking ahead, a resilient economy remains the best safeguard against uncertainty in the U.S. Whether this momentum will persist is uncertain, as we face challenges such as slower population growth, the risk of trade uncertainties and tariffs. Nonetheless, 2025 is expected to be a year of transition, with lower interest rates, rebounding inflation, and evolving domestic challenges.

The Bank of Canada is expected to hold its policy rate steady—for now. But if tariffs emerge, a rate cut is almost certain.”

KEY TAKEAWAYS

• Canada’s real domestic product (GDP) grew at an annualized rate of 2.6% in Q4 2024—well above the market expectation of 1.7% and the Bank of Canada’s forecast of 1.8%.
• On a per capita basis, the economy grew by 0.2% in Q4 for the first time since Q1 2023, even though GDP per capita fell by 1.4% in 2024 after a 1.3% decline in 2023.
• December’s monthly GDP rose by 0.2%, led by strong retail sales and the services sector.
• Household spending increased by 1.4% in Q4, boosted by lower interest rates and a temporary HST holiday. This pushed overall household consumption higher, with per capita consumption rising for the second quarter in a row.
• Residential investment climbed 3.9% during Q4, and we expect this trend to continue as rates stay low. Business investment saw a modest increase of 0.7%, mainly in building construction and machinery.
• Exports grew by 1.8% in Q4, contributing to an annual growth of 0.6% in 2024—helped along by higher shipments of crude oil and bitumen.
• Despite a significant reduction in inventories, largely due to motor vehicle stock adjustments, strong domestic demand provided solid support for the economy.

OUTLOOKS AND IMPLICATIONS

The Canadian economy showed robust growth in Q4, with real GDP rising by 1.5% in 2024—above the Bank’s forecast of 1.3%. The continued upward momentum in consumption and a strong labor market suggest a positive trend ahead. Lower rates and a housing market rebound could keep this momentum going. However, potential tariffs proposed by President Trump could slow down the economy by increasing uncertainty and delaying spending decisions.

January’s monthly GDP is expected to grow by 0.3%, giving the year a strong start, supported in part by the ongoing HST holiday. Market expectations for a rate cut at the Bank of Canada’s March 12 meeting have dropped from 51% to 46%, suggesting a likely hold. The Bank will need to monitor risks to growth and inflation closely, particularly if tariffs are imposed.

SUMMARY TABLES

Note: Previous forecast data shown in parenthesis.
Sources: Statistics Canada; Bank of Canada Monetary Policy Report, January 2025.