EDITOR’S NOTE: An earlier version of this story said the GDP growth was 0.6 per cent. The real GDP growth by expenditure was 0.6 per cent. The total annualized GDP growth was 2.6 per cent. This additional information has been added.
Canada’s economy grew in the final months of 2024, even as the shadow of U.S. President Donald Trump‘s threatened tariffs looms over the country.
Statistics Canada said Canada’s GDP grew by 2.6 per cent annualized in the fourth quarter of 2024, compared to 2.2 per cent in the third quarter.
Canada’s GDP growth rate of 2.6 per cent significantly beat analyst expectations. The Royal Bank of Canada had forecast a growth rate of 1.5 per cent.
This was led by household spending, which saw a quarterly increase of 1.4 per cent – the strongest growth since the second quarter of 2022.
Statistics Canada added that household spending rose by 2.4 per cent in 2024, led largely by Canadians buying new trucks, vans and sport utility vehicles, as well as expenditures on rent, telecommunication services and financial services.
Canada’s construction sector saw residential construction increase by 3.9 per cent, the largest quarterly increase since the first quarter of 2021.
Canada’s export sector is expected to take an immediate hit if Trump hits Canada with tariffs next week, however the sector had a strong fourth quarter in 2024. The export of goods and services rose 1.8 per cent.
In 2024, exports of goods and services rose 0.6 per cent. This was led by higher exports of crude oil and bitumen, followed by travel services and pharmaceutical and medicinal products.
Tariff threat looms
Tu Nguyen, economist at RSM Canada, said without tariffs, Canada’s economy is entering 2025 on strong footing.
“Canada’s economy shows promising growth in the last quarter of 2024 and is poised to have a robust 2025 given price stability, decreasing interest rates, as well as the sales tax holiday. Without tariffs, Canada will enter 2025 on solid footing,” she said. “However, the threat of tariffs could hinder growth and investment decisions.”
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Canada also saw an eight per cent increase in business investment, including a 17.9 per cent surge in machinery and equipment investment. A note from Nathan Janzen, assistant chief economist at the Royal Bank of Canada, said tariffs could put business investment at risk.
“The threat of U.S. tariffs remains significant, and even if not actually implemented could choke off early signs of recovery in business investment,” the note said on Friday morning.
Nguyen said the federal government’s GST/HST holiday also contributed to retail trade growing in December.
The GDP estimates come just days before Trump’s sweeping tariffs on Canada are scheduled to go into effect. Several economists, including Bank of Canada governor Tiff Macklem, have said broad-based tariffs by the United States would be devastating for Canada’s economy.
“In the pandemic, we had a steep recession followed by a rapid recovery as the economy reopened,” Macklem said last week. “This time, if tariffs are long-lasting and broad-based, there won’t be a bounceback.”
Macklem said while Canada could recover part of the growth, the damage would be long-lasting.
Will Bank of Canada cut interest rates?
Whether or not the Bank of Canada cuts interest rates will depend on what happens next week.
Janzen said if Trump chooses to not hit Canada with tariffs, it “increases the odds that the BoC will not cut the overnight rate further in March.”
However, tariffs will significantly increase the likelihood that the central bank lands another rate cut.
Nguyen said, “The Bank of Canada’s next rate decision will come down to whether tariffs come into effect next week. Absent a broad-based tariff, the Bank could feel comfortable taking a pause, although another cut might be necessary if tariffs occur.”
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