The Canadian economy expanded at an annualized rate of one percent in the fourth quarter as high interest rates weighed on growth, but not enough to push the economy into a recession.
The increase in real gross domestic product follows a decline in the third quarter of 0.5 percent annualized.
Statistics Canada says growth in the fourth quarter was driven by a rise in exports, while housing and business investment both fell.
In December, real GDP was flat as goods-producing industries contracted and Quebec’s public sector workers’ strike weighed on growth.
BMO chief economist Douglas Porter says the economy is “grinding forward” with help from strong U.S. spending trends, which have boosted Canadian exports.
“There’s no debate that growth is nevertheless anemic, especially when cast in per capita terms,” he said in a client note, adding that real GDP per capita is down more than two percent from a year ago.
The federal agency says outside of 2020, economic growth in 2023 rose at its slowest pace since 2016.
High interest rates have weighed on Canadians’ finances as the Bank of Canada holds its key interest rate at five percent, the highest it’s been since 2001.
Households continue to renew their mortgages at higher rates, which is causing a pullback in consumer spending and a slowdown in sales for businesses.
The Feb. 29 report says while consumer spending was up for the quarter, it continued to decline on a per capita basis as the country experiences strong population growth.
A preliminary estimate suggests real GDP grew by 0.4 percent in January.
The Bank of Canada has signalled that it’s next move is most likely a rate cut as inflation eases and higher rates dampen economic growth.
Canada’s annual inflation rate ticked down to 2.9 percent in January amid a broad-based slowdown in price growth.
Most economists expect the central bank to start lowering its key rate around the middle of the year, but a stronger-than-expected economy may reduce the urgency for the central bank to act soon.
“This changes little for the Bank of Canada, as conditions don’t appear to be worsening so there’s no urgency to cut rates,” Mr. Porter said. “With growth still well below potential, disinflationary pressure will continue, but it will require ongoing patience.”
The Bank of Canada is set to announce its next interest rate decision on March 6.
