Canada's economy tops Q4 growth forecasts, another rise seen in Jan

FILE PHOTO: A float plane flies past containers and cranes at the Port of Vancouver, British Columbia, Canada, July 30, 2023. REUTERS/Chris Helgren/File Photo

OTTAWA (Reuters) – The Canadian economy expanded at an annualized rate of 1.0% in the fourth quarter, exceeding expectations, and gross domestic product likely grew 0.4% in January, Statistics Canada data showed on Thursday.

The fourth-quarter growth rate was higher than the Bank of Canada’s (BoC’s) 0.0% forecast as well as the 0.8% growth rate expected by analysts in a Reuters poll.

Month-over-month, real GDP was essentially unchanged in December, missing a 0.2% growth forecast.

The stronger than expected rebound in quarterly growth after the GDP contracted in the previous quarter shows the central bank could keep rates on hold for longer to fight inflation without leading the economy into recession.

Quarterly growth was fueled by a rise in exports as imports declined, Statscan said, adding that a decline in business investment was a moderating factor.

The BoC expects economic growth to be modest in 2024 as effects of past interest rate increases continue to restrain consumption and business investment.

The bank’s next announcement is on March. 6, when it is expected to keep its policy rate at a 22-year high of 5%.

Money markets see more than three quarters of a chance for a rate cut in June and bets of a first 25 basis point cut is fully priced in for July.

The Canadian dollar strengthened marginally after the data with the local currency trading 0.01% stronger at 1.3577 against its US counterpart at 1340 GMT. Bond yields for the two-year Canadian government bonds rose 2.4 basis points to 4.227%.

The bank, which since July has kept rates unchanged, said last month that its focus was shifting to when to cut borrowing costs rather than whether to hike again.

Since the bank’s last rate announcement, data has been mixed with job growth exceeding expectations in January and inflation cooling faster than expected. At 2.9%, inflation is still running hotter than the bank’s 2% target.

In an advance estimate for January, Statscan said increases in educational services and health care and social assistance, were partially offset by decreases in mining, quarrying, and oil and gas extraction and transportation and warehousing sectors.

(Reporting by Ismail Shakil and Dale Smith, Editing by Nick Zieminski)