In a surprising turn of events, Canada has defied expectations with robust GDP growth, leaving experts and analysts in awe. Recent data from Statistics Canada (Stat Can) has revealed unexpectedly strong growth in the country’s gross domestic product (GDP) for the months of November and December. While this is generally considered good news for the economy, it has also raised questions about the timing of potential interest rate cuts, which may now be delayed.
Canada’s Economic Growth Exceeds All Predictions
The data from Stat Can paints a picture of Canada’s economy growing at a much faster pace than anyone had anticipated. In November, real GDP advanced by 0.2%, and preliminary estimates for December show growth of 0.3%. Given the historical tendency for preliminary estimates to be revised downwards, skepticism among experts is understandable.
Douglas Porter, Chief Economist at BMO, acknowledges this skepticism, saying, “If that flash estimate is correct (a rather large ‘if’), the economy will have grown at better than a 2% annualized pace over the last three months of 2023.” He goes on to point out that while this growth is not considered robust, it represents a significant improvement from the stagnation experienced during the middle six months of the year.
Porter attributes the strength in Canada’s GDP to the goods-producing sectors, particularly manufacturing and resources. He suggests that the spillover effect from the United States, which has consistently reported exceptional economic data, may have contributed to this growth.
Higher Q4 GDP Growth Sets the Stage for 2024
If the preliminary data holds, the fourth quarter of 2023 will demonstrate much stronger growth than previously anticipated. BMO’s estimates project Q4 to exhibit 0.3% growth, equivalent to an annualized rate of 1.2%. In contrast, the Bank of Canada’s (BoC) forecast released just last week had predicted flat (0%) growth for the same period, a prediction criticized by experts for being overly optimistic.
Porter emphasizes that assuming December’s flash estimate is accurate, Canada’s economy is heading into 2024 with more momentum than widely expected. However, he also points out that this growth is relatively modest compared to the country’s 3% annual population growth rate.
Rate Cuts Delayed as Canada’s Economy Flourishes
While the strong GDP growth is undoubtedly good news for the Canadian economy, it may not be as welcome for those anticipating interest rate cuts. The growth experienced in 2023 appears to exceed the expectations of the central bank. BMO predicts that this strong performance will lead to higher forecasts for 2024.
As a result, there is now less pressure on the Bank of Canada to implement rate cuts in the near future. This robust economic result, following a period of sluggish growth, gives policymakers the flexibility to delay easing measures while they wait for underlying inflation to decrease further.
In conclusion, Canada’s unexpectedly strong GDP growth has defied predictions, setting the stage for a potentially prosperous 2024. While this is positive news for the Canadian economy, it may lead to a delay in expected interest rate cuts, as policymakers closely monitor economic conditions before making any adjustments.