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Investing.com -- The Canadian economy demonstrated solid growth in the fourth quarter of 2024, driven by strong domestic demand.
Economic activity exceeded expectations, registering a 2.6% quarter-over-quarter seasonally adjusted annual rate (qoq saar) in 4Q24, an increase from 2.2% in the third quarter. This acceleration confirmed that the Canadian economy is stronger than previously projected.
In 2024, the Canadian economy expanded by 1.5% on a seasonally adjusted basis. Monthly GDP growth in December was slightly below expectations at 0.2% month-over-month seasonally adjusted (mom sa), an improvement from -0.2% in November.
Goods-producing industries rose 0.3% mom, driven by mining, quarrying, and oil and gas extraction (0.8% mom) and utilities (4.7% mom). Services-producing industries increased 0.2% on the back of retail trade (2.6%), which surged due to the GST/HST tax holiday.
Based on the stronger-than-expected performance of the Canadian economy in 4Q24, BofA economists have revised their growth forecast for 2025 upward to 2.4% from 2.3%. This revision takes into account some impact from uncertain US tariffs on the economy.
However, the analysts noted that if permanent tariffs of 25% are enacted as early as March 4, 2025, they expect growth to drop to around 1%. Short-lived tariffs lasting less than six months could reduce growth to 1.5%. The growth expectation for 2026 is projected at 2.2%.
BofA analysts believe that the Bank of Canada (BoC) will maintain its current stance given the robust growth in consumption and investment.
However, if permanent tariffs are imposed on March 4, the BoC might need to cut rates below its neutral range of 2.25% - 3.25% to help the economy avoid a recession. If the tariffs are short-lived, the BoC could cut to 2.50%.
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