Canadian GDP Outperforming Expectations, No Rate Cut Urgency: BMO

Canada’s economy is proving to be more resilient than virtually all analysts had anticipated. Statistics Canada (Stat Can) data shows real gross domestic product (GDP) climbed in Q4, driving annual growth into positive territory. Accompanying the gain was an upward revision to the previous quarter’s decline, revealing an economy that may struggle with growth but isn’t in recession. At least one bank sees this resilience as lessening the urgency for any Bank of Canada rate cuts.  

Canada’s Economy Outperformed, Squeezed Out Growth In 2023

Canadian real GDP managed to beat inflation and print some decent growth last quarter. Real growth climbed 0.2% in Q4 2023, working out to 1.0% annual growth. This accompanied an upwards revision to Q3 (-0.5%), cutting the initially reported decline (-1.2%) to less than half. That was enough to push 2023 annual growth to 1.1%, which may not sound impressive—especially with population growing nearly double that clip. However, beating inflation to get any real growth was already a substantial hurdle to clear. 

“On balance, not a bad set of results, but also driving home the point that growth is stuttering and sometimes struggling to stay positive,” explains Douglas Porter, Chief Economist at BMO. 

Adding, “The fourth quarter rise was lifted by net exports and a modest consumer spending advance. Other than that, it was a sea of negatives in the quarter, with declines in housing, business investment and even government spending (!).”

Canadian Housing Investment Declines As Buyers Disappear

The housing decline may be concerning at first glance, but it’s not in the area one may assume. The segment of GDP contracted 0.4% in Q4, marking the sixth decline in the past seven quarters. It wasn’t due to a lack of new construction (+2.2%) though. Consumers aren’t pulling back either, with renovations (+0.2%) proving to be resilient. 

Canada’s housing weakness was almost exclusively concentrated in the resale segment. Ownership transfer costs (-7.7%), which include sales commissions, showed a sharp decline. An expected result after record-setting existing home sales over the past few years.  

Bank of Canada Unlikely To See Urgency To Cut Rates

Canada’s economy has some sore spots, but it isn’t doing nearly as bad as many had anticipated. Porter calls the growth “anemic,” especially per capita (-2% annual decline). He specifically calls out the decline in business investment, and his team previously mentioned the flight of general investment into the country

However, the economy is demonstrating more resilience than anticipated. GDP continues to outperform forecasts, employment is stable, and inflation is slowing. All of this adds up to a picture more resilient than the central bank was planning to address. 

“…this changes little for the Bank of Canada, as conditions don’t appear to be worsening so there’s no urgency to cut rates,” Porter explains.



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  • Overworked 2 months ago

    Interest rates will not drop for another year.

  • Ed Burns 2 months ago

    When will we start reporting GDP adjusted for inflation?…. if we do that we’ll see the economy has been contracting in real terms for a while now..

  • Andrew Baldwin 2 months ago

    Daniel writes: “That was enough to push 2023 annual growth to 1.1%, which may not sound impressive—especially with population growing nearly double that clip.” No, it doesn’t sound impressive at all, does it. So, it has been confirmed that we have had a three-quarter real GDP per capita recession, for the last three quarters of 2023. That not only doesn’t sound impressive, it sounds upsetting. Growth certainly didn’t exceed expectations in terms of monthly GDP by industry. Last month the preliminary estimate from StatCan was for 0.3% growth, and instead December was flat, which meant that GDP per capita (based on the LFS working age population) declined by 0.25%, or 2.9% at an annualized rate. The December 2024 real GDP capita is 2.7% below the level of September 2022. Canadians have been getting poorer, not richer, for all of the talk of economic growth. If the Bank of Canada is in no hurry to lower rates maybe that’s a bad thing, not a good thing.

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