Canadian Quarterly GDP (Q4 2024)

Canada's GDP surged to end 2024 

• The Canadian economy topped expectations in the fourth quarter of last year, advancing 2.6% quarter/quarter annualized (q/q, AR). The third quarter was also revised higher (+2.2% q/q from +1.0 q/q). Stripping out external factors, final domestic demand came in at a very strong 5.5% q/q. The flash estimate for January showed a very strong 0.3% monthly increase.
• Consumer spending was a major contributor in the quarter (+5.6% q/q from 4.2% q/q in Q3). Spending was concentrated on durable items (+14.2% q/q) like trucks, vans, and SUVs, as well as telecommunication and financial services (+5.8% q/q). 
• Residential investment shot higher (+16.7% q/q), with greater resale activity and increases in new construction/renovations all driving the gain. Non-residential investment was also strong (+8.1% q/q), as aircraft shipments in the quarter provided a one-time boost. 
• Exports gained 7.4% q/q, while imports were up by 5.4% q/q. The difference added 0.6 percentage points to overall GDP. High demand for precious metals, energy, and cars led the export gain, with most of this coming in December, when tariffs started flooding news headlines.

Key Implications

• The Canadian economy flexed its muscles in the back half of 2024. Consumers were once again the driving force, as lower interest rates and the GST/HST tax break spurred spending on luxuries like autos and dining out. There was also evidence of businesses front-running tariffs, with exports to the U.S. surging in December. Elsewhere, non-residential business investment may have been strong in Q4, but we don't expect that to persist given the souring of business sentiment in Canada. All told, it was a strong quarter for Canadian growth. And while some of this momentum appears to have carried forward into 2025, with tariffs potentially on deck next week, today's report seems to be telling a story of what could have been for the Canadian economy.
• Today's GDP release isn't going to sway the BoC. Yes, the report was strong. But Governor Macklem is more concerned about the risks on the horizon rather than what happened last year. The bank's own research shows huge downside risks to the economy should tariffs come to pass.  Market pricing is still effectively a coin flip for the BoC's meeting on March 12th. This feels right, as the BoC could go either way. No one would complain if the BoC took out more insurance against the downside risks with another 25 bp cut, while a hold could also be justified should the bank prefer to take a wait-and-see approach.            

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