Analysts polled by Reuters had expected the GDP to grow by 1.8 percent in annualized terms in the quarter ending December, similar to Bank of Canada’s predictions from last month.
The third quarter growth rate was revised to 2.2 percent from 1 percent earlier, Statistics Canada said. It added that, on a month-on-month basis, the economy in December expanded by 0.2 percent, reversing the contraction seen in November.
This was mainly due to healthy growth in retail sales and a sales tax break that started from mid-December, it said.
The monthly GDP figures are calculated by industrial output while quarterly figures are calculated by spending and expenditure.
An advance estimate shows that monthly growth would likely be 0.3 percent in January.
The Canadian dollar extended gains after the data and firmed 0.15 percent to 1.4417 against the U.S. dollar, or 69.36 U.S. cents. Yields on the two-year government bond rose 1.6 basis points to 2.639 percent after the data was released.
Canada’s economy, which had been sluggish for a better part of last year, has shown signs of improvement lately as interest rates fell from over two-decade high levels from the middle of last year.
The BoC has shrunk rates by 200 basis points from June to 3 percent in January in its bid to prop up economic growth, especially as reducing immigration numbers and an impact of widespread tariffs from the U.S. pose major risk to growth.
Household spending, which accounts for more than half of the total GDP, rose 1.4 percent in the fourth quarter, registering its biggest jump since the second quarter of 2022, Statscan said.
Residential construction rose by 3.9 percent, its largest quarterly rise since the Q1 2021, while business investments, which have been mostly a laggard for the last 11 quarters, posted a growth of 0.7 percent in Q4, led by a 4.2 percent increase in investment in machinery and equipment.
On a per capita basis, real GDP rose 0.2 percent in the fourth quarter, the second increase in the last seven quarters.
Canada’s economy is at an uncertain point where its continued growth or a possible slowdown depends on the extent of tariffs that the U.S. President Donald Trump decides to impose.
The BoC has said that it might have to cut rates to support the economy in the event of sweeping tariffs.
However, a healthy fourth quarter GDP is likely to help the bank to pause the rate cutting cycle. Currency markets reduced their bets marginally for a 25 basis point rate cut next month to below 50 percent after the data was released.
