Canada’s economic rhythm has taken a fascinating turn, hitting a crescendo that exceeds growth predictions and raises questions about the Bank of Canada’s immediate plans for rate cuts, according to economists.
In a recent report from Statistics Canada, November’s GDP growth of 0.2% outperformed expectations, creating a buzz of optimism. The excitement amplifies with a flash estimate projecting an even more robust 0.3% growth in December, painting a promising picture with a fourth-quarter reading of +0.3%, equivalent to an annualized rate of 1.2%.
BMO’s chief economist, Douglas Porter, describes this unexpected surge in Canada’s economic finale for 2023 as a potential game-changer, hinting at a potential upward adjustment to 2024 estimates. The noteworthy economic backdrop alleviates immediate pressure on the Bank of Canada to entertain notions of rate cuts.
Fueled by a remarkable +0.6% increase, goods-producing industries played a pivotal role in November’s growth, marking their most substantial growth since January 2023. TD’s Marc Ercolao suggests that the momentum of a heated Canadian economy might shift expectations for the Bank’s first rate cut further down the road. Nevertheless, he anticipates that the Bank will likely hold its ground until inflation makes a decisive move towards the coveted 2% target.
Economists at Desjardins join the chorus of optimism, envisioning sustained growth and the possibility of higher-than-expected inflation as we step into 2024. Yet, they wisely advise caution, acknowledging potential economic challenges stemming from ongoing mortgage renewals at higher rates and a slowdown in population growth.
Despite the positive vibes, a note of caution is sounded by some economists. RBC economist Claire Fan urges prudence in interpreting the positive readings from November and the robust flash estimate for December. She reminds us that early GDP estimates are akin to a first draft, subject to revisions. Fan highlights that the strength witnessed in November might be attributed to unique factors, such as rebounds from earlier factory shutdowns and strikes, which may not be recurring in the upcoming months.
Moreover, even with a promising annualized growth rate of 1.2% for Q4, there’s a potential cloud on the horizon. Fan anticipates that elevated interest rates could apply pressure on consumer demand, potentially slowing down growth in output and inflation over the first half of 2024 before the anticipated rate cut in June.
As we eagerly await the next act in this economic performance, the unexpected crescendo in Canada’s economic symphony keeps economists on their toes. The intricate dance between growth, inflation, and interest rates unfolds, and the spotlight now turns to Statistics Canada, set to release December GDP data on February 29, 2024. The anticipation is palpable, and the question remains: What will be the Bank of Canada’s next move in this captivating economic melody.
