Canada’s GDP Shows Robust Growth, Potentially Delaying Rate Cuts: BMO

Canada just bucked expert estimates and it’s growing much faster than expected. Statistics Canada (Stat Can) data shows stronger than expected growth for gross domestic product (GDP) in November and December. BMO believes if, and they stressed if, the data is correct, the economy is growing much faster than anyone had forecast. That is generally good news, but they warn it also means less pressure to cut rates, potentially delaying the first cut. 

Canada’s Economy Grew Much Faster Than Anyone Anticipated

Canadian GDP showed much higher growth than anyone, including the central bank, expected. Real GDP advanced 0.2% in November, with the agency’s preliminary estimate showing 0.3% growth in December. Considering the number of times the preliminary estimate’s official confirmation came in significantly lower, it’s not surprising to see a little skepticism from experts. 

“If that flash estimate is correct (a rather large ‘if’), the economy will have grown at better than a 2% annualized pace over the last three months of 2023,” said Douglas Porter, Chief Economist at BMO.  

Adding, “While far from robust growth, it marks a significant pick-up from the stall in activity during the middle six months of the year.” 

Porter’s analysis revealed the strength came from goods-producing sectors, particularly manufacturing and resources. He attributes that to a spillover effect from the United States, which has continually been churning out exceptional data. 

Canadian Q4 GDP Growth Will Drive Higher Expectations For 2024

If the preliminary data holds, the quarter will show much higher growth than anyone had forecast. The bank’s estimates show Q4 would come in at 0.3% growth, about 1.2% annualized. The BoC forecast released just last week showed flat (0%) growth over the same period. It was criticized for being overly optimistic by experts. 

“Assuming December’s flash is close to accurate, there’s simply much more momentum than widely expected heading into 2024,” explains Porter. 

He emphasizes this presents upside risk, but at the same time is paltry when contrasted with 3% annual population growth.  

Bank of Canada May Delay Rate Cuts After Pressure Removed

Good news for the economy but bad news for anyone waiting for interest rate cuts. Canada’s growth in 2023 is looking much larger than the central bank had expected. BMO sees this driving 2024 forecasts higher. 

“In turn, there’s also less pressure on the BoC to start cutting any time soon. This solid result, after a long dry spell for growth, affords policymakers the ability to gently push back on easing chatter, as they wait for underlying inflation to come down further,” explains Porter.  

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  • Frank 4 months ago

    Surely the numbers are not weighted to support a narrative. Control the markets and have the means to make it happen? It’s like a mouse to cheese 🧀

  • Ben 4 months ago

    Curious how the GDP growth is related to the historic amount of immigrants that have been coming and other non productive manipulated political tactics.

  • Messor Animae 4 months ago

    The Bank of Canada should not lower interest rates when the economy is doing fine because, if it does, it loses the interest rate wiggle room it needs to stimulate the economy when there’s a recession. Also, lowering the interest rate will overstimulate the economy causing inflation to get stuck at over 3% or even increase. If the economy continues to do well and inflation doesn’t decline toward 2% fast enough or at all there will be an interest rate increase.

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