MNI: Canada GDP Shows Momentum Into Early 2025 As Tariffs Loom
MNI (OTTAWA) - Canada's economy showed unexpected momentum through January even through some of the first major U.S. trade war threats, momentum economists have said will keep the central bank from cutting borrowing costs for a seventh time next month unless Donald Trump suddenly moves ahead with punishing tariffs.
Gross domestic product climbed 0.3% in January according to Statistics Canada's flash estimate Friday from Ottawa. The agency said increases in mining, energy, wholesale, transportation and warehousing were blunted by weaker retailing. That followed a 0.2% December gain.
The flash figure suggests a solid hand-off from annualized fourth-quarter growth of 2.6% beating the Bank of Canada's 1.8% estimate. Household spending, exports and business investment led the gains, which may also reflect the central bank's G7-leading rate cuts that began in June. Retail sales in December also rose at the fastest pace since June 2021 with the 2.6% increase aided by a federal sales tax holiday.
StatsCan also boosted estimates for growth in the second and third quarters. They were raised to 2.8% from 2.2% and to 2.2% from 1.0%, respectively. The agency said a bigger contribution from government spending and a lower drag from imports lifted those figures.
One sign of vulnerability was manufacturing's sixth decline in seven months in December, from an industry among the most vulnerable to tariffs. On the domestic side, per capita GDP fell 1.4% in 2024 following a decline of 1.3% in 2023. That reflects record immigration and population growth before the government cut back late last year, and some economists have told MNI those declines amount to a hidden recession.
Bank Governor Tiff Macklem is in a difficult spot as domestic growth and core inflation remaining above 2% suggest little need to cut interest rates in the near future. The tariff threat suggests otherwise, with Bank staff estimates showing an up-front hit to output that could stall growth for two years.