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(Bloomberg) -- The Canadian economy gained strength at the end of last year, fueled by a rapid series of interest-rate cuts, as the northern nation braces for the Trump administration’s threatened 25% tariffs.
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Advance data suggested gross domestic product grew 0.2% in December, Statistics Canada said Friday. That’s a reversal from a 0.2% decline in November, the largest monthly contraction since December 2023 and weaker than a median estimate of a 0.1% drop from economists in a Bloomberg survey.
Taken together with a 0.3% increase in October, industry-based figures point to fourth-quarter output rising at a 1.8% annualized pace, ending 2024 with 1.4% growth for the full year — somewhat in line with expectations.
The Bank of Canada forecast GDP in both the final quarter and the full year to expand 1.8%, while economists expected slightly softer growth of 1.6% for the quarter and 1.3% for the year.
A pickup in growth from a tepid 1% increase in the third quarter will give Bank of Canada officials more confidence their easing campaign to strengthen the economy is working, even as a looming tariff war risks causing a recession. Policymakers slowed their pace of rate cuts this week and signaled they’re not certain about their next move due to a lack of clarity around President Donald Trump’s tariff plan.
The loonie fell to a near-five year low against the US dollar on Thursday after Trump repeated his pledge to impose 25% tariffs on goods the US imports from Canada and Mexico starting Saturday. It was trading at C$1.4489 per US dollar as of 8:59 a.m. in Ottawa, while the yield on two-year Canadian government bonds fell about three basis points after the GDP release to 2.675%.
“The economy appears to be in reasonable, albeit not great, health and clearly risks to the future outlook have intensified recently, leaning towards further interest rate cuts from the Bank of Canada,” Andrew Grantham, economist at Canadian Imperial Bank of Commerce, said in a report to investors.
All of the momentum in the economy could be halted this weekend if Trump follows through on his threat, Tiago Figueiredo, macro strategist at Desjardins Financial Group, told investors.
“The market reaction has been limited as market participants are awaiting clarity on trade policy,” he said.